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Risks and Contingencies

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Where business opportunities have been identified, risks are usually associated with capitalizing those identified business opportunities. It is important to identify any risks associated with setting up a business. This also applies in the case of an existing business that intends to expand, diversify or grow. The identification of risks helps you come up with contingencies to mitigate the risks. Risks include financial risks, market risks, operational risks, human resource risks, economic risks, technological risks and other risks. Given below is a list of factors to look at when identifying and assessing risks.

Types of risk



1.    Financial Risks



  • Poor or high gearing ratio
  • Poor profitability
  • Loan non repayment
  • Low gross profit
  • Interest Cover
  • Debt/ Equity ratio
  • Debtors
  • Financial sensitivity
  • Solvency problems
  • Liquidity problems
  • Contingent liabilities
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2.    Market Risks



  • Threat from substitute commodities
  • Threat from suppliers
  • Threat from customers
  • Threat from new entrants
  • The direct competition
  • The indirect competition
  • Seasonal fluctuations
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3.   Operational Risks



  • Occupational heath and safety risk
  • Time
  • Quality
  • Reliability
  • Environmental risks
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4.    Human Resource (People) Risks



  • Recruiting and retaining quality employees
  • Incidence of fraud
  • Incidence of mistrust
  • Incidence of strike actions
  • Loss of key personnel
  • Diversity Management
  • Management vulnerability
  • Labor relations problems
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5.   Economic Risks



  • Global economic conditions
  • Regional economic scenario
  • Interest rates
  • Exchange rates
  • Inflation rate
  • Petrol prices
  • Food prices
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6.    Technological Risks



  • How dynamic the technology is
  • The cost of the technology
  • The availability of technical support
  • Security risk
  • Loss of information
  • Compatibility risk

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7.     Other Risks



  • Barriers to entry
  • Business planning
  • Business Instability

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financial information
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