Risk is an inherent part of doing business. Any seasoned business leader will tell you they expect to encounter at least some common business risks. Oftentimes, taking on the risk is necessary to reap rewards. Still, proper planning and understanding is imperative to keep your organization safe from huge losses.
Many types of business risks exist. You can explore each category in detail in our article about risk management in business. Today, some specific business risks have become more common. This is a digital age, and many companies compete in a global economy, creating new and complicated scenarios to plan for.
Here are four increasingly common business risks leaders, risk management professionals and investors must be aware of.
1. Political Changes
Risks associated with the political environment, or political risk, mean that profits could suffer due to political changes or general government instability in a country. Common political changes that can affect organizations include trade tariffs, labor laws and environmental regulations.
In the United States, switching from one political party to another can affect everything from taxes to employment guidelines. In an article in the Fiscal Times, macroeconomist Mark Thoma stated that monetary policy, fiscal policy, confidence in the economy and international policies all play a role in business. These things are intertwined with who is president. He said, “Whether the president is a Republican or a Democrat could make a critical difference in how well we respond to the next economic crisis.”
Political risks will play an even larger role in the execution of your business if you work internationally. On the world stage, politics and the economy are often deeply related. The World Bank Group stated, “On the one hand, the uncertainty associated with an unstable political environment may reduce investment and the pace of economic development. On the other hand, poor economic performance may lead to government collapse and political unrest.” In this way, economics and politics create a cycle that can be detrimental to businesses if things are not going well. The article goes on to point out that political stability caused by oppression or lack of competition can negatively affect the economy. Therefore, stable doesn’t always mean profitable.
The business risk associated with the political environment is a hard one to protect against, but something that all risk management professionals should be acutely aware of when navigating their financial and investment activities. Researching and doing your due diligence is important. From there, plans can be laid out for how certain risks associated with the political environment should be dealt with.
2. Cybersecurity Threats
Data security issues are quickly becoming one of the top business risks. Juniper Research estimates that cybercriminals will steal an estimated 33 billion records in the year 2023. The average cost of a data breach to a company is $7.19 million. In addition to being costly, they can damage a company’s reputation leading to more lost revenue. While cybersecurity was once an issue best left to IT professionals, it now has the potential to affect everyone in the business.
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Forbes stated, “This [cybersecurity] is especially important as businesses are more digitized, meaning they are exposed to an increasing number of threats if they do not manage the risk of security properly.” The article explained that hacking software is increasingly more sophisticated, and hackers are moving to agendas that include disinformation, market manipulation and infrastructure disruption. Still, the well-known risks of data theft and vandalism are still huge threats to business.
Incorporating protection into all areas of the business can help your company protect against the risk of data security issues. It’s important that all members of the organization are aware of how to safely handle data, what a phishing scheme might look like and how to report an issue so it can be dealt with immediately.
3. Reputational Issues
In the age of social media and online reviews, no one’s reputation is safe from a shift. Now more than ever, people shop based on a company’s character and integrity. Negative changes to reputation can severely impact an organization’s bottom line. A study by Moz found that 67% of consumers are influenced by online reviews. If more than three negative articles pop up in a consumer’s search of a company or product, a business is likely to lose 59.2% of its potential customers.
The impact doesn’t stop at revenue. Recruiting talent becomes more difficult when your company suffers negative publicity. According to a CareerBuilder survey, 71% of U.S. workers avoid applying to a company that is experiencing negative publicity. The former chief human resources officer at CareerBuilder, Rosemary Haefner, said, “In today’s 24/7 news cycle and social media world, earning and maintaining a good reputation can be a challenge. It’s easier than ever before for job seekers to research potential employers.”
Reputational risk can happen directly or indirectly. The changes may be due to the actions of the company or employees or due to third parties, such as suppliers or partners. Your reputation is also at risk from unhappy customers and employees. It’s imperative to have professionals focusing on your image who understand risk management and how to plan appropriately.
4. Mergers and Acquisitions
Mergers and acquisitions are a huge part of doing business. In the first half of 2018, more than $2.5 trillion in mergers were announced, according to the New York Times. This number broke records. It’s likely that business leaders and risk management professionals will face a merger or acquisition in the future, if they haven’t already.
While mergers and acquisitions create a lot of opportunity for companies, they aren’t without risk. Some common risks that companies might face include differences in culture, poor communication and incorrect valuation of assets. According to Investopedia, mergers and acquisitions only have a 50% chance of success, no matter how well intentioned they are.
All mergers and acquisitions should be carefully examined. Risk management planning should be at the forefront of every merger or acquisition, ensuring that risks are being properly assessed and prepared for in order to avoid an unsuccessful merger.
Protect Against Common Business Risks
Business risk management is clearly important. No matter your background, further training can help you identify and prepare for all types of risk. The online master’s in risk management from Notre Dame of Maryland University offers a diverse curriculum to enhance your risk analysis skills. If you aren’t ready to commit to a graduate program, in just one year, you could receive your online risk management certification. NDMU is the risk management training choice for the U.S. Army Corps of Engineers. Make it your choice for your education in business risk management procedures.