What Are the Main Types of Business Risk?
The main cause of uncertainty in any company is risk. Business success can also correlate with the degree of risk that an organization faces, and the measures that they have or have not taken to manage it.
As a result, businesses are increasingly concerned with identifying and controlling risks before they have an impact on the business. The ability to assess and mitigate risk will aid businesses in being more confident about future commercial decisions, which in turn should result in increased profits.
Here, we'll review some key factors pertaining to business risk and why you need to prioritize its management.
What Is Business Risk?
The term "business risk" generally refers to the vulnerability a business has to factors that have the potential to reduce its earnings or lead it to failure. It pertains to the factors that can make or break a company, rendering it an essential concept to know and strategize with.
These factors, which can be social, economic, technological, or political in nature, often seem beyond a company's control and are subject to frequent change. Understanding them is necessary to making informed decisions that will have a positive impact on the business.
Types of Risk
What Is Employee Risk?
Employee risk is the potential for damage that an employee may experience or cause while on the job. This can include anything from injuries sustained in a workplace accident to data misuse or falling for a phishing scam.
According to a study by Varonis, 53% of organizations have more than 1000 sensitive files that are accessible to every employee. The larger the pool of employees that have access to protected data, then the greater the risk is for this information to be mishandled or stolen.
The statistic above illustrates just how prevalent employee risk is in today's workforce, and why it must be managed.
It is the responsibility of the employer to ensure that all employees are thoroughly trained in order to reduce the riskiness in their handling of sensitive data. Employers are also responsible for providing a work environment that is safe and free of hazards. In order to do this, the employer must have procedures and plans in place to reduce the possibility of negative occurrences.
What Is Compliance Risk?
The risk of a company's financial, organizational, or reputation standing being jeopardized as a result of noncompliance with laws, rules, codes of conduct, and organization standards of practice is known as compliance risk. This type of risk is most often faced by companies that operate in highly regulated industries, such as health care and financial services.
If an organization is subject to the regulations of HIPAA, GDPR, CCPA, GLB, or other similar laws, then they are at particular risk for noncompliance. Each of these laws comes with its own set of steep fines and penalties for violations. This is why it is key to understand what laws you are subject to and what steps need to be taken to meet them.
What Is Financial Risk?
Financial risk is the chance of experiencing money issues of any kind on an investment or company project. Credit risk, liquidity risk, and operational risk are examples of more prevalent and distinct financial risks.
A financial risk represents potential hazards that might result in the loss of money or lack of capital to interested parties. It is an inherent part of doing business and is thus very relevant to all sectors.
What Is Vendor Risk?
Vendor risk is the potential for damage, interruption, or loss to a business resulting from activities conducted by its vendors. When you collaborate with vendors and grant them access to the data you keep, you run the danger of being exposed to significantly higher risk.
When selecting vendors, businesses must ensure that these vendors have adequate auditing and examination processes in place so that they can meet their contractual obligations. If any issues should arise, they must have a contingency plan in place that will help to resolve them quickly and effectively.
If your company is subject to comply with GDPR, HIPAA, CCPA, or other data privacy laws, then these typically have their own set of requirements or agreements that must be signed between businesses and vendors before they begin to share information. Make sure you understand the details of these necessary documents for the laws that are applicable to you, most of which we have resources dedicated to on our blog.
What Is Customer Trust?
Customer Trust deals with the reputational risk and harm to your brand's reputation and image in the market due to a variety of potential negative circumstance. This is a hidden hazard or trouble to the good name and reputation of a company or entity, which can be caused in a variety of ways and have adverse impacts on its ongoing ability to do business.
Particularly in this day and age of digital information if customers, patients, or clients perceive that the proper precautions are not being taken to protect their sensitive information, a company’s reputation can quickly pay the price. That is why it is so essential that data protection and cybersecurity are a priority not only because it is your duty but also because it is key for maintaining the trust of your customers.
What Is Stakeholder Trust?
Stakeholder trust is fostered by organizational activities that promote confidence and approval from the stakeholders. Keeping stakeholders up-to-date and happy with security and compliance operations is key to running a company. If they feel as if a business is hiding something or not doing things the right way, they may pull their investment or instate other challenges.
What Is Business Risk Management?
Business risk management seeks to avert these negative outcomes by evaluating and minimizing risks before they take place. This is done through a number of methods, including risk assessment, insurance, and diversification.
Risk assessment is the process of evaluating potential risks and their associated impacts. It involves studying what could happen, why it might happen, and how likely it is to occur. This information is then used to create a plan of action that will help to mitigate the risk.
Insurance is a risk-based contractual arrangement between two or more parties where one party (the insurer) accepts the risk of a specified loss from the other party (the policyholder). Essentially, it can be defined as "compensation for a loss in exchange for a premium". The key here lies in diversification – instead of putting all your eggs in one basket, spread your risk by investing in a variety of different ventures.
This way, if one fails, you still have others that may succeed. By managing business risk, you can help to ensure the longevity and success of your company.
Why Is It Important To Mitigate Business Risk?
Businesses must take steps to mitigate risk in order to protect their interests and the interests of their patrons. While there is no such thing as a risk-free business, taking the appropriate precautions can help to minimize the chances of one of these types of risks affecting your business.
According to Cisco, 97% of companies have seen a competitive advantage after investing in privacy.
Risk management is an important part of overall business strategy and should be included in any long-term plan. By systematically identifying the risks in a given business situation and determining how to handle them, you can better prepare for unexpected circumstances.
Risk management is all about minimizing the chances of something bad happening. This not only protects the interest of your company but also helps to ensure its longevity and survival in an increasingly competitive market.
Not sure where to begin? Work with the right people and get on top of your organization's risks with a SaaS company built specifically to address each and every type of risk mentioned in this article. That’s where Accountable comes in.
Accountable’s All-in-One Platform
Accountable HQ is a risk & compliance software-as-a-service company whose goal is to be an informational source on topics of data security, data privacy legislation, HIPAA or GDPR compliance, risk management.
We are constantly expanding our platform to address and handle each and every aspect of risk that companies face in their operations. Whether it is addressing financial risk by offering business loans and other financing solutions directly through our app, offering varied kinds of employee training to prevent their data misuse, creating systems for creating and sharing reports with stakeholders on all risk management processes, or providing you with an easy-to-use solution for complying with any compliance laws, Accountable has truly thought of it all.
When it comes to managing each type of risk you may face, reaching privacy compliance with applicable laws, and ensuring privacy and security across all levels of the company, Accountable is the no-brainer, one-stop-shop. Still not convinced? Schedule a call or watch our on-demand demo to learn more!