Mind map
Types of Risk
Mind map: types of risk in business
Map content
Types of Risk
Financial risks
- Risks associated with the financial position of the firm and generally result from the concept of leverage
- Leverage
- The degree to which the business uses non-equity capital compared to equity capital
- Leverage = (non-equity capital) / (equity capital)
- Financial risk (both positive and negative) to a business increases with the use of non-equity capital
Business risks
- Risks associated with production and marketing components of the business
- Market or price risks
- Relates to the uncertainty in markets and prices for both inputs (purchased for the production process), and outputs (products and services for sale by the firm)
- Production risk
- Is the variability inherent in the firm's production process
- Technology risks
- These relate to the uncertainty caused by rapid technological change
- Human risks
- Humans are a key source of risk. Humans are prone to mistakes, misinterpretation, and health problems
- The fact that humans tend to change their goals and objectives often adds to the uncertainties facing the firm
- Legal and social risks
- Government policy risk
- In addition to the monetary, fiscal and trade policies, Commonwealth and State governments have various policies - both general and industry specific