Question

what are the sources of risk in an organization

Answer 1

Sources of risk are very much peculiar to the type of organisation i.e they depend on whether it is a manufacturing organisation, project organisation etc. But there are some common sources of risk for all types of organisation. They are as follows.

(1) Production risk : This the risk of not achieving the budgeted optimum level of production due to frequent bottlenecks in production process, low yielding raw materials etc.

(2) Marketing risk : Market conditions are always dynamic so there will be changes in way competitors reacts with change in product design and product price. These factors will pose threats on firms ability to sell the production, which is called as marketing risk.

(3) Financial risk. Financial risk arises when there the firm is levered. That means firms with debt in their capital structure had to pay for interest and principle repayments. During poor marketing conditions, available earnings may not be sufficient to pay for the debt services. Possibility for bankruptcy is called as financial risk.

(4) Legal risk : External environment consists of regulatory frame work imposed by policy makers of the economy in which a firm operates. They are enactments hence its mandatory for every organisation to fulfill every aspect of those legislation. Risk arise when it becomes not possible for the form to carry on with those legal obligations due to any financial crisis it is facing due to any other risk factors mention above.

(5) Human resource risk : Managing of human resources is said to be more challenging then managing any other resource. This is due to presence of human factor whose behavior is highly uncertain. Increasing labor turnover, unrest in the organisation due to poor labor relations are the types of human resource risk an organisation normally faces.