Business Risks Articles

External and Internal Factors of Business Risks

Business risk factors are the reasons that have a negative impact on the company’s activity. These reasons may be both objective and subjective.

It is very important for any manager to have a clear notion about the risk factors. But it is even more important to know the possible ways to reduce their influence. Knowledge about risk factors helps the company be more flexible and ready for any troubles.

In general, the factors of business risks are divided into external and internal ones.

External factors of business risks

Macroeconomic factors that indirectly influence the activity of the company represent the external factors of risk. For example, this is a government policy. If a government takes a decision to support a national producer, then all purchases from abroad may become more expensive, which can completely oust certain businesses from the market. There is a variety of such macroeconomic factors: the beginning of hostilities, the rapid growth of inflation, the adoption of laws that regulate certain activities or create prohibitions.

Scientific and technical risk factors that can make the entire industry uncompetitive are equally important. The natural factor does not depend on the state policy, but it can either promote or completely destroy business growth.

Internal factors of business risks

Internal factors are categorized as investment, production, organizational and managerial.

In turn, production risk factors are divided into factors of the main, additional or serving production.

Investment risk factors include mistakes in creating a business plan, financing unpromising projects, mismatches between the investment potential and the actual return of the project.

Managerial risks can be tactical and strategic. Strategic mistakes are more destructive than the tactical ones. Managers should demonstrate the skills of defining and eliminating mistakes developing a growth strategy or creating the competitive advantages. This is of particular importance for the e-commerce companies. Errors in strategic planning may result in a wrong choice of development alternatives and lead to the adoption of wrong decisions that do not generate income.

Personnel risks refer to the most important risks. They commonly come into effect when managers cannot divide the workload in a proper way or provide employees with too much authority. One of the most frequent problems of small businesses is the training of specialists who become competitors in the future. For the large companies, mistakes in personnel policy may be a reason of the overall inefficiency of production.

Risk factors should be identified from inside. To do this, it’s necessary to communicate with the ordinary employees and ask about the existing problems. Managers should be interested in a constant search of bottlenecks in the production processes. The obtained information can provide a solution to many of the risks that an enterprise may encounter.

Internal risk factors are as destructive as the external ones. To solve internal problems, the company has to change its management tactics. On the contrary, in order to solve external problems, the company must adjust to these problems.