Types of Risk Essay Example for Free

Types of Risk EssayAdditional useful development on types of try Market or price risk relates to the uncertainty in market places and prices for both inputs (purchased for the output process), and outputs (products and services for sale by the firm). Market/price risk has always been a major occupation in most stockes and results from the economic forces of supply and demand. Outcome of these forces are fluctuations in the price for a goodness and/or inputs in the occupation of that commodity. These fluctuations may be short-term and long. The degree of fluctuation and the length of conviction are critical to their kernels on the byplay. Managers generally anticipate some degree of fluctuation in prices and plan accordingly. These plans may include spreading production and sales over time to average the effect of peaks and troughs in the market, establishing contracts to obtain a fixed price, and pooling sales with other producers to obtain a better market or an aver aging of returns from the larger organisation.Low prices in the short term may be tolerated by a furrow if it has sufficient cash reserves to meet negative financial returns from lower prices. Low commodity prices in the longer term pose serious threats to the viability of the enterprise, and the business, should that enterprise orchestrate a major stem of income. The growing impact of globalisation and opening of most world economics is as well increasing the unevenness of market and price risk. Remember that this includes both opportunity and potential loss. Production risk is the variability inborn in the firms production processes.This is predominantly the variability of product yield, both in yield quantity and quality. a great deal quantity is considered but quality is also an important consideration particularly for products where warranty and service strengthener are provided. Variances in labour, weather, transport and inventory can all reduce (or increase) expecte d output, or thrust clutch in the production cycle of any business. Quality reduction, or delay in the production cycle, can further reduce the expected market or price returns for the unit of production.A delay in the production cycle can result in an inferior product or supernumerary time and costs to finish the product, thus reducing the margin of returns from the enterprise. Technological risks these relate to the uncertainty caused by rapid technological change. A production or investment decision made today may be affected by technical improvements in the future. This is particularly important for structures and high cost, long-life plant. A change in applied science may place the business in a less in effect(p) and less competitive situation against its competitors and the marketplace.Similarly non keeping up with technology can also make the business less efficient and less competitive. A business not utilising EFTPOS would find business quite difficult. Some investment s can take upward of ten years for the planned commodity to adjudicate into full production (e. g. horticultural products such as fruit or nuts. Agro forestry is a particularly long-term investment, as is mining). Human risks gentlemans gentlemans are a key source of risk. Humans are given up to mistakes, misinterpretation, and health problems. The goals and objectives of management form the long- and short-term business plans for the firm.The fact that humans tend to change their goals and objectives often adds to the uncertainties facing the firm. Humans have skills limitations. The introduction of a new process or new technology may require new and sophisticated skills. Humans interpret, learn and respond to situations in different ways. Examples of human risk situations include health and injury problems, particularly with key personnel. mistakes made in the production process. segmentation in interpersonal relationships within the workforce. misinterpretation in communicat ion. esistance to change. An inability to learn. the existence of vices such as avarice and selfishness. fraud, dishonesty, theft. there is also a growing value to a business of the intellectual property/ fellowship of its workforce. Legal and social risks these risks increase in developed society. Laws created to protect people, property and the environment can bowdlerize the business playing field. Decisions made and techniques used today may result in litigation at some future date. There may be a close correlation between human, court-ordered and social risks.For example the duty of care in respect of others within our legal system. This is important from both management aspects firstly a business has a responsibility to a persons physical well-being. There is the risk that a person or that persons property may be injured or ruind as the result of the business activities (public liability). Secondly there is a duty of care in respect to business advice that may be given to another. This is important in advice where You know, or should have known, that they might rely on that advice.Consider recent litigation against James Hardie as an example of such risks. The growing importance of OHS obligations is another example. Some production processes often alter the physical environment, creating the risk of downstream detrimental effects on others (for example chemical spills, effluent disposal). The risk manager must consider environmental risks not only in relation to their direct effect on the business, but also for the potential damage to others property rights and the subsequent potential litigation which may ensue.Government policy risks government policies help to desexualize both the external and internal environments for the agricultural business. In addition to the monetary, fiscal and trade policies, Commonwealth and evoke governments have various policiesboth general and industry specific. These risks can be particularly stressful on business es as policy can be quickly introduced and are often unexpected. There can be a considerable production and time lag for the business to respond to the new or neutered policy. Financial risks Financial risks result from the uncertainty in the finances of the business.The commercial manager has two sources of finance (working capital) their own equity capital, or someone elses capital. Someone elses capital can be acquired through borrowing, leasing, and, in the larger firm, the issuing of shares. The use of non-equity capital creates opportunities for growth in the business. This will occur where additional finance can be used to increase productivity and subsequent income through the purchase of additional assets (resources). For example, money may be borrowed to purchase additional stock, plant and machinery, or to expand production capacity.Leasing is another form of non-equity capital. In this situation the business acquires the use of additional productive assets, and pays a nominal rent for this usage. Non-equity capital also creates financial costs (liabilities such as rent, interest and capital repayments) which may place the business in financial difficulty. The business may not be able to meet its financial commitments (this is liquidity risk), or indeed become insolvent (where liabilities exceed assets). The use of non-equity capital involves the concept of leverage.