Accesing potential risks
Causes of risk
There are two main groups of causes for risks to occur in the Enterprise,
specifically as follows:
Subjective reasons
Subjective causes often stem from human factors within the enterprise:
Risk management ability of employees: If employees do not have enough
knowledge, skills and experience, it can lead to the occurrence of risks. For
example, a salesperson's lack of knowledge about the product or how to respond
to a customer's questions can lead to selling the wrong product or answering
questions incorrectly, resulting in loss of customers and reduce sales.
Lack of responsibility of management levels: If managers do not fully ensure
their responsibilities in enterprise risk management, the occurrence of risks may
not be detected and resolved in time. For example, if the management does not
ensure occupational safety, it can lead to occupational accidents and affect the
health and mental health of employees.
Lack of prudence in decision making: When overconfident and careless in
decision making, Enterprises can make wrong decisions and cause risks. For
example, if the Enterprise decides to invest in a project that is not clear in terms
of profit potential and risk, it may lead to loss or bankruptcy.
Objective reasons
Objective causes of risks stem from external factors, which are beyond the
control of the Enterprise:
Market and economic factors: prices, competition, financial and tax policies
may pose risks to the Enterprise. For example, if the real estate market drops
suddenly, businesses operating in this field may find it difficult to sell products.
Environmental and natural impacts: weather, natural disasters, environmental
impacts and other natural factors can also pose risks to the Enterprise. For
example, a hurricane can cause significant damage to Business property.
Changes in policies and regulations: For example, if the government imposes
new taxes or changes regulations related to the import or export of goods, the
Business may face difficulties in doing business.
Dependence on partners and suppliers: If a partner or supplier has problems or
fails to meet the requirements of the Enterprise, the Company's production and
business may be seriously affected.
Risk classification
Based on impact
Considering the level of impact of risks on the activities of the Enterprise, risks
can be divided into 4 categories as follows:
Strategic risks arise in the process of planning and implementing the strategies
of the Enterprise, for example risks related to resource allocation plans,
mergers, acquisitions and divestments.
Operational risks occur during the operation of the Enterprise: risks related to
business activities, marketing, supply chain, human resources and information
technology.
Compliance risk relates to the Enterprise's responsibility to comply with
relevant regulations, including risks related to legal, corporate governance and
other regulations.
Financial risks related to the financial management of the Enterprise, including
risks due to fluctuations in market factors (interest rates, foreign exchange,
commodities and derivatives) and risks due to fluctuations in the solvency of the
enterprise.
Based on nature
Risks can be classified based on their nature with the following 3 categories:
The first type is business risk, related to the choice of business lines of the
Enterprise. Each industry, each business field has its own characteristics, which
significantly affect the operation of the Enterprise such as business cycle, asset
structure, capital structure and capital turnover rate.
The second is operational risk, which comes from the company's use of
operating leverage. Using high operating leverage, a company can invest in
fixed assets to increase productivity, output, and competitiveness. However, this
also increases initial investment costs, leading to higher risks if product sales
are poor.
The third risk is financial risk, arising when the enterprise mobilizes and uses
debt capital for production and business activities.
Based on the sphere of influence
Risks can be divided into 2 categories, based on their scope of impact:
Systematic risks: are risks that cannot be controlled and affect the entire
economy as well as business lines. The main causes of systemic risk are usually
due to fluctuations in natural disasters or the business environment such as
inflation, changes in the legal system.
Unsystematic Risks: These are controllable risks that only affect a particular
Business or industry. The causes of unsystematic risk are often related to factors
such as poor internal management, excessive use of financial and business
leverage, or operating in a fiercely competitive environment.