Operational Risk Vs. Business Risk

By | December 14, 2012

Many business entities might have encountered failures or losses while operating their businesses. These failures can be due to the inefficient decision making, or implementing bad strategies or because of employees’ mistakes. Companies mostly face two risks in their businesses, namely operational risk and business risk. Let’s discuss each briefly.

Managing Business risk
Business risk is defined as the risk that arises when a business entity takes decisions on products/services that it offers. For example, if a new product is launched and the product does not fare well in their marketing campaign, obviously they lose their finances. Poor pricing and shipping of products is also one of the reasons for failure of businesses causing financial losses.

Introducing a new product in the market can be risky and there is a probability of losing finances. If the product results in positive impact, it’s OK. Otherwise, you have to think about other alternatives to face the worst consequences of that new product in order to balance the loss.

Managing Operational risk:
These risks are the ones that result in the way the company tries to deal with the decisions – which means even though the company takes correct decisions on the products for sale, it still generates no profits. If such decisions are not managed by the right strategies of risk-management, eventually company has to bear loss.

Taking right decisions in a business is a tedious and is a difficult task for a company, especially the risks that arise from the lower-end operational tasks. So in order to control and keep the lower-end staff to work in a right manner with correct procedures, you have to prepare and implement the contingency plan. With this plan, you can easily get control over the lower-level staff.