Explain the concept of business risk and its causes.

Q.6:- Explain the concept of business risk and its causes.



Business risk is the possibility of failing to earn sufficient profits or incurring losses as a result of various unforeseen circumstances which are beyond the control of a business. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers.

Natural causes: Human beings have little control over natural calamities like flood, earthquake, lightning, heavy rains, famine, etc. These 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.

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.