Risk Management in Business Organizations

The provided document discusses the importance of risk management in business organizations. It highlights various types of risks that businesses face, such as financial, economic, health, and safety risks. The document also explores risk management approaches, including enterprise risk management (ERM) and strategies for mitigating these risks. Examples from companies like Tesco and Granite Construction are used to illustrate the implementation of effective risk management practices.

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RISK MANAGEMENT AND DECISION MAKING
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Introduction
Risk in business implies to any kind of uncertainty that can negatively affect the
business. In business risk can turn up at any point of time such as increase in the level of
competition, financial risk and more. In order to reduce risk, organizations have implemented
different strategies to overcome the risk at economic, social and political level (Brustbauer,
2016). Implementation of risk management in business organization helps business to save
their important resources such as money and time. The essay will elucidate on different types
of risks that results from economic, social, political and technology. It will also help to
understand the importance of risk management in business organization.
In the recent days, professionals defined the terms as per the type of risk such as
exposures, anticipated variability and more. Depending on various factors risk
professionals have differentiated between pure risk and speculative risk in order to
understand the subject more clearly. In case of pure risk in business organizations, there is no
chance of any gain from the loss and this consists of pure loss (Chance & Brooks, 2015). For
instance, fire risk can be classified under pure risk, from which there is of chance of gain. On
the other hand, speculative risks refer to the situation in which there is a chance to gain from
the loss through risk management. One of the important key management approaches that is
used by business organizations is the Enterprise Risk Management (ERM). This concept
identifies all types of risks that takes place in business organizations and accordingly the
ways to mitigate the risks are devised (Slovic, 2016).
Economic risk in domestic and global business is associated with financial
investments or any economic factors that might affect an organization in a negative way.
Economic risk in business organizations can result from different factors which includes

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fluctuations in the exchange rates, economic sanctions and more (Clark & Tunaru, 2015).
Apart from this other types of economic risks that can affect domestic and global business
includes risks related to reductions in the product prices, risk in the increase in prices of the
raw materials and more. The international business risks associated with the expansion of
business in new markets are related to the import of raw materials, tax issues in foreign
countries. Foreign business can experience economic risk in foreign markets, as political
instability can be more in emerging markets. Therefore, in order to expand business in
emerging markets, it is necessary to evaluate the market conditions in terms of investment,
political stability and financial conditions. Apart from this, frontier markets are also
susceptibility to economic risk as these kinds of markets are generally found in countries
which place restrictions on foreigners to invest in businesses of those particular countries.
As per the International Risk Management Institute, political risk consists of the
exercise of political power which might have a negative impact on the business. For instance
political risks in global business, consists of Government of the legislations of a particular
country might prohibit trade with other countries which can lead to the reduction in the
amount of sale of the product in that particular market (Hopkin, 2017). It is to be noted that
the political risk to business organizations can result from various factors that include issues
related to macro economics such as increase in the interest rates and social issues that consist
of civil unrest. While in domestic business, interventions of Governments actions such as
seizing company’s assets can make it difficult for business to acquire their financing
resources. Apart from this, political instability in global business is one of the important risk
factors that affect business in a negative way. Other political risks can affect foreign business
by not allowing business organisations to convert their money into foreign transactions,
importing and exporting products. Political risk can have a severe effect on business
organizations as it can lead to the closing down of the business operations.

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Emerging technologies in the recent days have proved to be beneficial for domestic
and global business as it helps in reducing cost, promotion of products and services in a much
organized way, targeting new customers. However, will all these advantages; businesses
sometimes are prone to technological risks such as fraudism, scams and more. Inspite of its
advantages in businesse security, risks remain one of the most important concerns for most of
the businesses. As per a recent data, there are many disadvantages associated with the online
business that results to poor growth of business in domestic and in global markets (McNeil,
Frey & Embrechts, 2015). For instance, in terms of online business, food industry cannot earn
any substantial profit, as foods cannot be preserved for longer period of times and in doing
so, food industries might result to losses.
Socio cultural risk relates to different business decisions and strategies that might
affect the business in terms of location and businesses entering foreign markets can
experience risk because of cultural and social factors such as language barriers, lifestyles,
economic condition and more (Olson, 2015). Other socio cultural risks relates to the opening
of business in the vicinity of heritage sites. This can lead to various problems and indirectly
can affect the business. Religion is also an important factor that might affect the business. In
the case of introduction of new products in the market religion can reduce the sales of the
products, if it does not comply with the religious beliefs of the potential customers of that
particular location.
Financial structure is one of the most important parts of the business as finance helps
businesses to expand its market growth, hiring employees. In case of financial risk, company
might suffer a huge set back such as a high debt in market, reducing profit and thereby
growth (Reason, 2016). This should be mitigated with the help of risk management where
managers need to manage assets tactfully and with the help of pricing tools the various

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companies can limit the budget of the interest margin. Financial risk management will help to
integrate budget and the allocation of resources in an effective way.
Economic risks can result from high rates of recession in the country. For example, in
2008, UK experienced recession that resulted in unemployment and as a result consumers
started spending less in products. In order to deal with risk management, Tesco has reduced
its product prices and offers free delivery and as a result has maximized its product portfolio
(Sadgrove, 2016). Apart from this, Lexis Nexis Entity Insight has an effective risk
management strategy which was implemented by Tesco in order to reduce the risk faced by it
and also to maximize its profit.
In the recent days many organizations face health and safety risk that might result
from unhealthy work culture, increase in carbon footprint and more. This might lead to
injuries and accidents among the employees in workplace. For example, Granite Construction
has faced severe health risk that might result to accidents and injuries among employees and
increase staff attrition (Shinkevich et al., 2016). As a result of health and safety risk
management, with the implication of ERM, the industry analysis of the risk factors, and
reduction of it with less harmful substances, the amount of risk faced by the companies have
considerably reduced. Furthermore, it has also redesigned its workplace with planting trees
all around, introduction of new equipments and more. This strategy helps the industry to
retain skilled staffs and reduced employee turnover.
Conclusion
From the above discussion it can be deduced that risk is a very common factor and
every business, be it small or large. experiences various types of risks at any point of time.
Therefore, in order to reduce risk in business organization, risk management is a necessary

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step to maximize the risk and also helps business to save their resources. Prior to this,
Enterprise Business Organization is one such risk management approach that is used by
businesses to reduce their risk.

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References
Brustbauer, J. (2016). Enterprise risk management in SMEs: Towards a structural
model. International Small Business Journal, 34(1), 70-85.
Chance, D. M., & Brooks, R. (2015). Introduction to derivatives and risk management.
Cengage Learning.
Clark, E., & Tunaru, R. (2015). Emerging markets: Investing with political risk.
Hopkin, P. (2017). Fundamentals of risk management: understanding, evaluating and
implementing effective risk management. Kogan Page Publishers.
McNeil, A. J., Frey, R., & Embrechts, P. (2015). Quantitative risk management: Concepts,
techniques and tools. Princeton university press.
Olson, D. L., & Wu, D. D. (2015). Enterprise risk management(Vol. 3). World Scientific
Publishing Company.
Reason, J. (2016). Managing the risks of organizational accidents. Routledge.
Sadgrove, K. (2016). The complete guide to business risk management. Routledge.
Shinkevich, A. I., Lubnina, A. A., Koryakov, A. G., Mikhailov, V. G., & Vodolazhskaya, E.
L. (2016). Economic aspects of risk management of stakeholders
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Slovic, P. (2016). The perception of risk. Routledge.