Production risk relates to the production of products, goods and services; Any type of production activity in which entrepreneurs face problems of inadequate use of raw materials, increasing costs, increasing loss of working hours, and the use of new production methods.
Production risk arises from the main reasons:
- reduction of the planned volumes of production and sale of products due to reduction of labor productivity, equipment downtime, loss of working time, absence of the necessary amount of raw materials, increased percentage of waste of produced products;
- lower prices for which the product or service was planned to be sold due to its insufficient quality, unfavourable market conditions, falling demand;
- increased material costs due to overexpenditure of materials, raw materials, fuel, energy, as well as increased transportation, trade, overhead and other side costs;
- Increase in the remuneration fund by exceeding the target number or by paying a higher-than-planned salary to individual employees;
- an increase in tax payments and other deductions as a result of changes in the tax rate to the unfavourable side for the business firm and their deductions in the process of operation;
- Low supply discipline, fuel and power outages;
- Physical and moral wear on the equipment of domestic enterprises.