The Risk Associated with Business: a Review of Literature

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GHANA INSTITUTE OF MANAGEMENT AND PUBLIC ADMINISTRATION (GIMPA). MASTERS IN BUSINESS ADMINISTRATION (MBA), SEPT. 2011.
BUSINESS ENVIRONMENT: Political Environment
GROUP (B) Class

LECTURER: JOSEPH DARMOE, PHD DATE: 21-DEC-2012 STUDENT: FELIX MAWUSI KUWORNU MBAE 11050219

TOPIC
THE RISK ASSOCIATED WITH BUSINESS: A REVIEW OF LITERATURE

LITERATURE REVIEW
Being an entrepreneur and operating a business involves accepting risk. Business Owners are exposed to two primary kinds of risks: Financial risk and Business risk (Oscar Guzman). Financial risk, as defined by chron.com is the chance that a business does not generate enough revenue to pay creditors and meet other financial obligations, depends on the amount of debt the business owes. Business risk is independent of a company’s’ debt level and relates to the business operations themselves. Oscar Guzman further points out that business risk negatively impacts value. Thus, for two otherwise identical businesses, one with a higher level of risk will always be worth less than one with less exposure. Managing risk therefore becomes paramount to maximising your business value. Guzman iterates the fact that business must continually evaluate it exposure, identify it sources and develop strategies for minimising that exposure. Although there is little small business owners can do to decrease their exposure to the market and sector-wide systematic risks, these risk are widely studied and there are plenty of resources available to entrepreneur that can help predict downturns and other regularly occurring events. Risk is defined many different ways depending on the discipline being queried for it meaning. On a general level, risk is defined as the probability of variance in an expected outcome (Spekman and Davis 2004). According to Spekman and Davis (2004) for example, if a person expects a certain outcome or result from an activity and the results fall short, risk deals with the consequence of this outcome. For most part, risk is seen as a reactive consequence since the inference is the downside effects of and outcome. Chilles and McMach (1996) observed that the notion of economic loss more closely reflects Manager’s perspective of risk. Philip A. Wickham looks at business risk from a different angle. He accesses risk from the standpoint of the strategist and in so doing begs the question “What do strategist mean when they talk about risk?” which incidentally happens to be the title of his article. Modern economic psychology has developed a broad and rich picture of risk, not just as a technical concept, but as something that influences the ways in which strategies think and make decision about risk and act within their risky world (Philip A. Wickham 2008). Philip A. Wickham in his article explores eight perspectives on risk and invites strategic managers to think about risk in a fuller way. After a (brief) account of risk as it appears in finance and economics, Philip A. Wickham (2008) considers risk as something that enters the strategic managers debates as something that influences strategic choice, as something that influences managerial behaviour, as a factor in position and status (for individuals and organisations), as something that affects the ways strategic managers think about and deal with information and finally, as something that like a resource, is shared between the organisation and its shareholders. Heavey and Murphy (2012), in their article “Proposed cooperation framework for organisation and their leaders” refer to risk in business life as a ubiquitous phenomenon. According to Heavey and Murphy (2012), if for instance the likelihood of an event occurring is less than 100 per cent and it has the potential to have a positive or negative impact on the business, then...
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