The Dimensions of Risk  Risk varies from business to business, but the dimensions of risk are similar across all businesses. The level of risk associated with a particular business or project will depend upon…

The Dimensions of Risk  Value of resources devoted to the project  Proportion of total business resources  Length of time for which resources will be devoted to the project  Inherent risk of the project  Cost of exiting the project  Recoverable costs were the project to fail

Visibility of risks  Potential risks can be identified during business planning process  Strategies can be developed to reduce them  Business’s ability to manage unforeseen risks depends on experience of management and nature of event.  Answer to reduce risks: A comprehensive business plan.

Types of risk  Operational  Industry  Financial  Political

Potential Risks Operational (Internal) Key staff resign/poached by competitor Problems occur in production process Machinery breaks down/incompatible with raw materials Stocks become damaged Fire, theft and floods IT problems Product is hot, but business cannot meet demand Actions of a rogue employee result in large liabilities for business Industry (External) New companies enters market Key supplier (of crucial raw materials) closes Demand for product falls Aggressive price cut from competitor New technology makes existing product obsolete Two competitors merge with major cost advantage Financial Stockmarket collapse prevents a crucial fundraising equity issue or merger with a competitor Interest rates increase; business’s debt increases Exchange rate is high; cost of raw materials from abroad increases High demand for product leads to overstocking; lacking of available working capital to fund business activities Political Sanctions imposed on country prevent access to customers or raw materials Taxation rates are changed/taxation policy is altered Grants, loans and subsidies are altered Trade unions organize industrial action Pressure from lobbyists requires change in business practices Business suffers organized vandalism by radical protestors

Risk Assessment  Indentifying risks by  PEST  SWOT  Position Mapping  Others

Quantifying risks  Quantity demanded of product  Selling price of product  Distribution costs  Sales and marketing costs  Cost of raw materials  Interest rates  Taxation rates  Exchange rates

Strategies for managing risk  Mitigating potential risks based on influencing one dimensions of risk  Eg. Business could choose to RENT all plant and machinery rather than INVESTING in its own equipment. This will reduce initial resources invested  Another strategy is to form partnership or joint venture with a supplier or distributor to share some financial and operational risks

Strategies for managing risk  For some projects, lease office space  Rather than employing a large number of full- time staff, contract staff could be used  Short-term contracts with suppliers can be negotiated initially as a further extension of the same strategy.