5 Business Risks

May 18, 2016October 20, 2022 by admin

Marketing of commodities involves several business risks. However, most of the business risks can be categorized in one of the 5 Business Risk categories. Below is the list of business risks and the possible risk management methods adopted by companies. The list is not comprehensive and certain industries might face business risks peculiar for that industry. Business risks can be seasonal or perpetual. Also, severity can be different for different companies for the same risk.

Classification of Business Risks:

5 Business Risks

Sl.	Risk Identification	Assessment of identified risk	Risk Severity	Risk Management
1	Manufacturing Risks
a	Non-availability of raw materials/ consumables	Company did not identify multiple sources for raw materials	High	Alternate vendors/ mines should be identified.
b	Breakdown in machinery	Equipments might face breakdown	High	Scheduled preventive maintenance should be done on time. Spare parts should be stocked.
c	Labour issues	Labour might go on a strike or might be unavailable for a few days due to a festival in the region or might get infected with a pandemic at the same time.	Low	Labour should be trained on multiple tasks to bring flexibility. Automation will also help in bringing down the dependence on manual labour.
d	Disruption in power, water supplies, gas, etc.	There might be disruption in public utilities.	Low	Back-up for a few days for power, water, gas, etc. should be ready with the factory.
e	Quality spills	The quality of the product might deteriorate.	Low	Staff should be encouraged to undertake quality improvement/ defect reduction projects.
2	Risks in Marketing
a	Change in preference/ Technology disruption	Company did not foresee the changing preferences of consumers or a new player has entered which has changed the way customer was earlier doing transactions.	Medium	Company should routinely survey customer satisfaction with the company’s services/ products and track any changes in the market trends.
b	Inadequate promotion	Company might not be spending enough to build awareness for its products or to convert interest into sales.	Medium	Right mix of the various advertising media along with right timing needs to be strategized for maximum return.
c	Weak USP/ Incorrect marketing communication	Benefits highlighted for the product might not be resonating with the consumer or the message is not very clear.	Medium	Market survey should be done to understand stated as well as tacit needs of the customer/ influencer.
d	Wrong choice of channel partners	Distributors and retailers selected might not be enterprising enough or have too little financial strength to promote the product	High	Financially stable, enthusiastic and preferably well-connected channel partners should be selected in a new market.
e	Misdirected advertisement	Marketing communications might not be reaching the correct target audience	High	Proper selection of advertising media should be done.
f	Wrong pricing strategy	Pricing might not have been set correctly for the customer to see correct value of the product	High	Pricing should be done keeping the value perception, competitor pricing and customer purchasing power.
g	Insufficient sampling	Company might not be distributing enough samples in the market or not	Medium	Provide enough samples and proof of concept in the market.
h	Poor after sales experience for the customer	Company might not have put in place a robust after sales customer support team or might not handhold the customer during installation	Medium	Dedicated after sales team should be built. This job should not be left to regular sales team.
3	Material Handling & Logistics Risks
a	Carrying & Forwarding Agents (CFA) not executing orders not time.	CFAs might not be very efficient in servicing customers, leading to delays in customer service.	Medium	Payments done on monthly basis, so there is incentive for CFAs to perform well.
b	Inefficiency in clearing stock from rake point resulting in higher demurrage & wharfage charges	Difficult to monitor whether the CFA is working efficiently or not.	Medium	Logistics officers appointed in major markets to oversee such issues.
c	Claim of higher shortages & damages by CFAs	Difficult to inspect the entire incoming material, especially from rake.	Medium	Logistics officers appointed in major markets to oversee such issues.
d	Transport vehicle meeting with accidents on the way.	Possibility of trucks meeting accidents on the way due to negligence of drivers or other reasons.	Low	Drivers asked to stick to speed limits by the transporters.
e	Stealth of material by transporter	Trucks not tracked on the way to the destination.	Low	GPS tracking system installed on trucks.
f	Transport Unions strong in certain markets	Transport unions make secondary movement expensive or difficult in certain markets.	Medium	Complying with the local requirements
g	Natural calamity at godowns	Calamities like earthquake, floods, fire, etc. can strike the godowns and damage the material stored.	Low	Swift action taken by company to salvage the stuck material.
h	Illegal land/ restrictive areas	Depots can be located in areas where government might impose transport restrictions or land can be declared as illegal possession by landlord.	Medium	Marketing officers do due diligence while recommending godowns. All papers checked as per legal requirements.
i	Stealth of material from godowns	Difficult to monitor to godowns round the clock.	High	Material in depots audited periodically by marketing team, Cameras installed in godowns.
4	Risks from Customers
a	Credit risk	Customers given much higher credit than the security deposits	Medium	Credit limits set and increased only after due diligence.
b	Outstanding	For some customers, outstanding is high and might be difficult to collect.	High	Constant follow-up done with customers for timely payment. Bank Guarantees available for major Non-Trade customers.
c	Material against concessional tax rates	Clients might not be able to give the required documentation in time.	Medium	Constant follow-up done with customers.
d	Supply issues	Supplies might not reach the customers as per promised schedule or not match their quality requirements.	Medium	Officer following up with the transporters and separate quality team functional.
e	Market price dilution by big wholesalers	Big wholesalers might try to average out their earnings.	Low	Discounts structured to not allow a big wholesaler influence market prices.
f	Inadequate profit margin to channel partners	The competition might be offering better ROI for the channel partners.	Medium	Frequent checks by the company to assess the profitability of the channel partners need to be done.
5	Risks from Environment Changes
a	New players entering the market	Can affect our market share and prices in the market	Low	Constant market feedback taken from regional offices.
b	Non-availability of other associated commodities like sand and gravel for cement, etc.	Can affect sales of commodity	Low	Constant market feedback taken from local marketing people.
c	Economic recession/ Natural calamity	Can affect spending power of consumers	Low	Company closely watching the economic scenario.

Table showing the 5 Business Risks

The various steps in risk management plan are enlisting all the possible risks, their likelihoods of occurrence, their expected impact or severity and making preparations for risk mitigation.