What Are the Different Types of Corporate Risks?
Corporate risks come in a number of different types. Some have to do with the internal function of the business, while others are concerned with external factors that could have some sort of negative impact on the profitability of the business in the short of long-term. Identifying these types of corporate dangers and developing strategies to minimize the impact is a key function in risk management, and considered essential to allowing the business to not only maintain its currently position in the marketplace but ultimately make it possible for the company to grow.
Internal corporate risks often revolve around the business model of the company itself. Here, the corporate risk management department will seek to identify anything inherent in the way the company operates that could present a measurable risk to the financial stability of the business. For example, risk management will look into what type of checks and balances are in place to prevent employee theft, either in the form of goods or supplies or settling proprietary information to competitors. The process will also involve evaluating working conditions that could have a negative impact on production or on the safety of employees working in those areas, since failure to provide adequate protection for employees does increase risk and could cost the company a great deal of money over time. Corporate risks of this type often have to do with security clearance in key areas, such as access to customer files, accounting records, and research & development activities.
Along with internal corporate risks, attention must be given to external factors that could exert a negative influence on the company or its reputation in the marketplace. Examples include new legislation that could have an adverse effect on the business operation, or even some sort of natural disaster that destroys key facilities. Depending on the nature of the business, this may involve considering how the company would continue to produce enough goods or services to meet customer demands if one or more facilities were suddenly rendered inoperable. To this end, risk management requires the development of contingency plans that make it possible to transfer production of those goods and services to other facilities, possibly even outsourcing to partner companies if necessary. Doing so can help insulate the company from losing money in the event of a natural disaster, a political coup, or any other situation that causes a shutdown of facilities.
The scope of corporate risks will vary, based on the size and structure of the business involved. Risks inherent to the operation of a multinational company will be more varied than those faced by a small company operating with a single location. In every case, care should be taken to identify risks relevant to how the company functions and make sure plans are formulated to contain those risks, allowing the business an opportunity to grow.
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