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Entrepreneurial risks

Business risk has an objective basis due to the uncertainty of the external environment in relation to the business firm. The external environment includes objective economic, social and political conditions in which the firm operates and whose dynamics it is forced to adapt. The uncertainty of the situation is determined by the fact that it depends on many variables, counterparties and persons whose behavior cannot always be predicted with acceptable accuracy. There is also a lack of clarity in the definition of objectives, criteria and indicators for their assessment (changes in public needs and consumer demand, technological and technological innovations, market changes, unpredictable natural phenomena).

The presence of entrepreneurial risks is, in fact, the reverse side of economic freedom, a kind of payment for it. The freedom of one entrepreneur is accompanied at the same time by the freedom of other entrepreneurs, therefore, as market relations develop in our country, uncertainty and entrepreneurial risk will increase.

The uncertainty of the future in business cannot be eliminated, as it is an element of objective reality. Risk is inherent in entrepreneurship and an integral part of its economic life. So far, we have paid attention only to the objective side of entrepreneurial risk. Indeed, risk is linked to real processes in the economy. The objectivity of risk is linked to the existence of factors that ultimately do not depend on the action of entrepreneurs.

Business risk is the risk arising from any business activity related to the production of products, goods and services and their sale; Monetary and financial transactions; Commerce and scientific and technical projects.

The complexity of classifying entrepreneurial risks lies in their diversity. Business firms always face risks in addressing both current and long-term challenges. There are certain types of risks to which all business organizations are exposed without exception, but along with the general ones there are specific types of risks characteristic of certain types of activities: for example, bank risks differ from risks in insurance activities, and the latter in turn from risks in production enterprise.

There is no slender system for classifying entrepreneurial risks in the economic literature on entrepreneurship. There are many approaches to risk classification. A certain interest is the classification of entrepreneurial risk by I. Schumpeter, who identifies two types of risk:
- The risk associated with a possible technical failure of production also includes the risk of loss of benefits caused by natural disasters;
- Risk associated with a lack of commercial success.

The entrepreneur faces risk at different stages of his activity, and, of course, the causes of a specific risk situation can be very many. Typically, a cause of occurrence is a condition that causes uncertainty about the outcome of the situation. For risk such sources are: directly economic activity, activity of the businessman, a lack of information on a condition of the external environment having an impact on result of business activity. On this basis, it is necessary to distinguish between entrepreneurial risks:
- Business risk;
- Risk associated with the person of the entrepreneur;
- Risk associated with lack of information on the state of the environment.

Due to the fact that the probability of the last risk is inversely proportional to the extent to which an entrepreneurial firm is informed about the state of the external environment in relation to its firm, it is most important in modern economic conditions. Insufficient information about partners (buyers or suppliers), especially their business image and financial condition, threatens the entrepreneur with risk. Lack of information on taxation of a foreign partner in the country is a source of losses as a result of penalties imposed on an enterprise firm by state bodies. Lack of information about competitors can also be a source of loss for the entrepreneur.

Risk associated with an entrepreneur 's personality is determined by the fact that all entrepreneurs have different knowledge of entrepreneurship, different skills and experience of doing business, different requirements for the level of risk of individual transactions.

By scope, business risks can be divided into external and internal risks. The source of external risks is the external environment vis-à-vis the business firm. The entrepreneur cannot influence external risks, he can only anticipate and take them into account in his activities.

Thus, external risks not directly related to the activity of the entrepreneur are included. These are unforeseen changes in business legislation; The fragility of the political regime in the country and other situations, and consequently the loss of entrepreneurs resulting from the outbreak of war, nationalization, strikes and embargoes.

The source of internal risks is the entrepreneurial firm itself. These risks arise from inefficient management, erroneous marketing policies, and internal abuse.

The main internal risks are personnel risks related to the professional level and character characteristics of employees of the enterprise firm.

In terms of duration over time, entrepreneurial risks can be divided into short-term and permanent risks. The short-term group includes those risks that threaten the entrepreneur during the final known period of time, such as transport risk when losses may arise during the carriage of the goods, or risk of non-payment under a particular transaction.

Persistent risks include those that continuously threaten business activity in a given geographical area or in a certain branch of the economy, such as the risk of non-payment in a country with an imperfect legal system or the risk of destruction of buildings in an area with an increased seismic hazard.

By the degree of legality of entrepreneurial risk, justified (legitimate) and unjustified (improper) risks can be identified. Perhaps it is the most important element of classification for entrepreneurial risk, which is of most practical importance. In order to distinguish between justified and unjustified entrepreneurial risk, it is necessary to take into account first of all the fact that the border between them in different types, entrepreneurial activities, in different sectors of the economy is different.

All entrepreneurial risks can also be divided into two large groups according to the possibility of insurance: insured and non-insured. The entrepreneur can partially shift the risk to other economic entities, in particular, to secure himself by carrying out certain costs in the form of insurance premiums. Thus, some types of risk, such as: risk of death of property, risk of fire, accidents, etc., the entrepreneur can insure.

Two other large groups of risks should be identified: statistical (simple) and dynamic (speculative). The special feature of statistical risks is that they almost always carry losses for business activities. At the same time, losses for a business firm tend to mean losses for society as a whole.

According to the cause of the loss, statistical risks can be further divided into the following groups:

  • probable losses as a result of negative effects on the assets of the firm of natural disasters (fire, water, earthquakes, hurricanes, etc.);
  • probable loss as a result of criminal acts;
  • probable losses due to the adoption of unfavourable legislation for the business firm (losses are related to the direct seizure of property or the inability to recover compensation from the perpetrator due to imperfections of the legislation);
  • probable losses as a result of a threat to the property of third parties, resulting in the forced termination of the operations of the main supplier or consumer;
  • losses due to the death or incapacity of key employees of the firm or the main owner of the business firm (which is due to the difficulty of selecting qualified personnel, as well as problems of transfer of ownership).

Unlike statistical risk, dynamic risk carries either losses or profits for a business firm. Therefore, they can be called "speculative". In addition, dynamic risks leading to losses for the whole firm can simultaneously bring benefits for the society as a whole. Therefore, dynamic risks are difficult to manage.