Question

Discuss the causes of risk.

Answer 1

Business risk arises due to a variety of causes which are classified as follows:

1. Natural Causes:
Human beings have little control over natural calamities like floods, earthquakes, lightning, heavy rains, famine, etc. These result in heavy loss of life, property, and income in business.

2. Human Causes:
Human causes include unexpected events like dishonesty, carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc.

3. 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. Financial problems like a rising interest rate for borrowing, levy of higher taxes, etc., also come under this type of cause as they result in the higher unexpected costs of operation of the business.

4. Other Causes:
These are unforeseen events like political disturbances, mechanical failures such as the bursting of the boiler, fluctuations in exchange rates, etc. which lead to the possibility of business risks.