CFO

The Business Risks You Need to Keep an Eye On

By Mitch Owens

In today’s world, managing risk should be a firm’s top priority. CEOs and business owners have many different types of risk to manage. Business risks can be classified by internal risks (risks arising from the events taking place within the organization) and external risks (risks arising from the events taking place outside the organization). Since time and space won’t allow us to explore these issues in depth, we’re going to identify just a few risks that companies need to manage.

Internal Risks
Fraud within an organization is a risk every company should take an active role in preventing. In their book Executive Roadmap to Fraud Prevention and Internal Control, authors Martin T. Biegelman and Joel T. Bartow share the following: “Dr. Donald Cressey, a famed teacher and pioneer in fraud research and an important fraud expert, developed the Fraud Triangle Theory to explain why people commit fraud. Dr. Cressey came to the conclusion that the propensity for fraud occurred when three critical elements came together: motive, opportunity, and rationalization.” Employers have control over the opportunity leg of the triangle. When employers remove this leg, the chances of fraud occurring are far fewer. Companies should be vigilant in this area to protect their assets.

Another risk firms face are compliance risks, which have to do with any government body that has regulatory authority over companies. Two government entities that carry a big stick are the Internal Revenue Service and the Environmental Protection Agency. Non-compliance with either of these regulatory bodies can result in huge fines. Firms should take an active role in keeping current with what these agencies require. Certainly it’s much wiser to stay in compliance than to get caught in the cross hairs.

External Risks
The second major area of risk companies face are external risks, such as hack attacks, political risks, and lawsuits by those with whom business is done, such as customers, vendors, or employees. During 2014, there were a few big data breaches in the news. Three big companies that had data breached were Home Depot, Michael’s Stores, and Neiman Marcus. Sure, firms might have insurance in place to help offset the cost of these attacks, but why let it happen in the first place?

CFO.com published an article titled, “The Rise of Political Risk.” For companies that do business overseas, the issue of geopolitical instability should be a top priority. Then, there’s the risk of getting sued by customers, vendors, and employees. Firms that are proactive and good at managing risk will put programs in place that will help minimize the risk of lawsuits from those they do business with. In this post, we have only scratched the surface of what firms should be doing to manage risk. However, to stay in business, this is such an important aspect of the running of a successful company.

If you want to learn more about business risks, feel free to follow this link to read Investopedia’s  more detailed article on the subject.

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If you want to learn more about business risks, feel free to follow this link to read Investopedia’s  more detailed article on the subject.  Thank you for joining us!

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