Entrepreneurship as Innovation and Problem Solving — Entrepreneurship STD 11 Commerce — Question

There are many factors which are responsible for business risks. Broadly, they can be classified as follows:

1. Internal Factors: These are those factors, which arise from the events taking place within the business itself. Since these arise from within a business, therefore, these can be controlled by the entrepreneur to a certain extent.

The various internal factors which give rise to risks are as follows:

1. Human factors: These factors are an important cause of internal risks. A business may face risk in the form of strikes, lock-out by the trade unions, negligence and dishonesty of an employee, accident or death of a key person in the company, incompetence of managers or of other key persons in the organisation, etc.

Also, failure of suppliers to supply the materials or goods on time or default in payment by debtors are also human factors which are a risk for a business and can adversely affect the business enterprise.

2. Technological factors: Risk in technological factors can arise in the form of unforeseen changes in the techniques of production or distribution leading to technological obsolescence. e.g. if there are some technological advancements which result in products of higher quality, then a firm which is using the traditional technique of production might face the risk of losing the market for its inferior quality product. So, with the advent of flat screen high definition TV, the coloured box TVs are losing their market.
3. Physical factors: These are the factors which result in loss or damage to the property of the firm. They include the failure of machine and equipment used in business, fire or theft in the industry, damages in transit of goods, etc. They also include losses to the firm arising from the compensation paid by the firm to the third parties on account of intentional or unintentional damages caused to them.

2. External Factors: These are those factors which arise due to the events occurring outside the business organisation. Such factors are generally beyond the control of an entrepreneur.

The various external factors which give rise to risks are as follows:

1. Economic factors: These factors are the most important cause of external risks. They result from the change in the prevailing market conditions.

The changes may be in the form of:

• Change in demand for the product.
• Price fluctuations.
• Change in tastes and preferences of the consumers.
• Change in the income of the consumer.
• Change in output of competing firms.
• Change in trade cycle.
• Increase in competition for the product.
• Inflationary tendency in the economy.
• Rising unemployment in the country.
• Fluctuations in the world economy.

2. Natural factors: These are the unforeseen natural calamities over which an entrepreneur has very little or no control. They result from natural calamities such as earthquakes, floods, famines, cyclones, lightening, tornadoes, etc. Such calamities may cause loss of life and property to the firm or may damage its products, e.g. the Gujarat earthquake caused irreparable damage not only to business enterprises, but also adversely affected the whole economy of the state.
3. Political factors: These factors influence the functioning of the business, both in the long, as well as, in the short-term. These factors result from political changes in a country, such as:

• Fall or change in the government.
• Communal violence or riots in the country.
• Civil war.
• Hostilities with the neighbouring countries.
• Changes in government policies and regulations.