Question

Discuss the causes of Business Risk.

Answer 1

Business risks arise due to a variety of causes, which are classified as follows:

• Natural causes: Human beings have little control over natural calamities like flood, earthquake, lightning, heavy rains, famine, etc. They result in heavy loss of life, property and income in business.
• Human causes: Human causes include such unexpected events like dishonesty, carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc.
• Economic causes: These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes, etc., also come under these type of causes as they result in higher unexpected cost of operation of business.
• Other causes: These are unforeseen events like political disturbances, mechanical failures such as the bursting of boiler, fluctuations in exchange rates, etc., which lead to the possibility of business risks.