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Nature of Business Risks

The nature of business risks shall be clear from the followings characteristics

(i)    Uncertainty is the main cause of risk. Uncertainty is an inbuilt feature of any business. Fluctuations in demands or prices, possibility of book debts tuning into bad debts, wrong estimates of demand and supply, change in Government policy, improvements in technology, natural calamities, etc. are some of the examples of uncertainties which influence the business.

(ii)    Risk is an essential part of business. Risk is an important feature of business. No business can be run without some element of risk in it. In fact, business means assuming risk. Peter F. Drucker remarked “Bearing of risk is an essential element of the business.” For example, when an entrepreneur decides about what to produce and how much to produce it is nothing but taking a calculating risk.

(iii)    Profit is the reward for undertaking risks. ‘No risk no gain’ is an important principle which is applicable to all types of business. An entrepreneur assumes risks and in consideration he gets rewards, that is, profit.

(iv)    Degree of risk depends upon the nature of business. The nature of business (i.e., types of goods and service produced and sold) and the volume of operations determine the degree of risk. For instance, a business dealing in fashionable items has higher degree of risk. Similarly, bigger business houses have higher degree of risk.

(v)    Degree of risk varies according to time. The degree of risk is also influenced by the time factor. For instance, threw will be greater risk during the time period when there is political instability in the country.

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