Business risk analysis

One of the mandatory sections in a business plan is devoted to project risk assessment. This part consists not only of forecasting possible negative situations during the implementation of the business plan, but also ways to reduce risks and mitigate the consequences as a result of their occurrence.

The depth of risk analysis in a business plan depends on the size of the project. For small companies, the assessment of industry experts and specialists may be sufficient. For large projects, they additionally use mathematical algorithms for constructing the probability of the onset of certain negative situations. The more complex the project, the higher the requirements for it.

The essence of risk assessment in a business plan is that you critically review all planned activities and measures and look for ways to eliminate the identified hazards. Go through all sections of your business investment plan, and do a full risk analysis of the business plan. Then determine the likelihood of their occurrence, and how much damage you will suffer. All risks, to varying degrees, affect the performance of the company and its position in the market.

For any project, the risk assessment in the business plan can be general and individual. Global threats to your investment project are changes in legislation, natural and social cataclysms, currency devaluation, etc. They cannot be prevented, but measures can be envisaged to reduce negative impacts. For example, to reduce the consequences of such risks, you can use insurance against force majeure, expanding the range and territory of distribution of goods, using the services of several suppliers, refresher courses, etc.

Global risks need to be taken into account in the business plan, but it will be much more interesting for your potential investor to see the list of individual risks. They can be listed only after reading your business plan. They depend on:

A project risk analysis in a business plan should be done at the end, when you conduct a market analysis and make a detailed description of your business.

Any risk can be minimized or prevented if it is identified at the planning stage.

Risks in business planning

Risk analysis of the project in the business plan

Do you know the famous biblical parable about how to build houses?

One man built a house on the sand, and his choice was justified. He calculated that this would make it easier to transport materials. The view of the coast, the sun rising over the horizon of the endless sea, the picturesque valley - this was a more interesting place to live than the hills and rocks on which his friend built his house.

But he left out one important point ...

When you build your business, you plan for many years ahead. Your business grows and develops, bringing you income from year to year.

Don't you think through all the possible negative points? You don't want your business to crash overnight, do you?

Risk assessment is an important section of any investment project and business plan.

Here not only possible risks are identified, but also methods are given to reduce both the likelihood of their occurrence and to minimize the negative consequences of their impact.

The more money you are going to invest in the project, the more thorough risk analysis is needed. If your project is not so ambitious as to spend money on a complete and most accurate analysis, then you can get by with simple expert assessments when assessing the risks of the project.

Since the risks are different and in each case they differ, you must do the following:

1) Identify a complete list of risks.

Can you predict everything?

Of course, it is simply impossible to analyze all the risks that may await you on the path of an entrepreneur, their range is already too wide, and the situation in our country is too unstable (especially recently). But it is quite possible to reduce them to a minimum. Evaluation and analysis of risks in a business plan and ways to reduce them must be present in every business plan, no matter whether it is intended for an investor or for personal use. back to contents ↑

What types of risks can businesses expect?

It should be noted right away that each business has its own individual risks, but there are also general risks that any company may encounter. The main obstacles for business are usually divided into two main groups:

  • External, which a businessman cannot influence
  • Internal, which an entrepreneur can partially eliminate, or avoid or eliminate completely

Let's look at what each risk group is. back to contents ↑

External risks

Internal risks

As you can see, almost all internal risks depend primarily on the entrepreneur himself, and to a greater extent, on the development of a business plan, which should provide for several options for the development of events. The risk assessment and insurance in the business plan should reduce negative factors as much as possible. Therefore, the development of effective methods of dealing with risks should be in the first place. back to contents ↑

Ways to mitigate potential risks

Business planning offers three main universal directions for minimizing negative aspects:

Production diversification

In a few words, diversification is the creation of multiple, independent sources of income. In fact, this can be expressed, for example, in the search for several suppliers. Quite often, companies dependent on one supplier found themselves in an unpleasant situation when the deadlines for the supply of raw materials, unilateral termination of the contract, etc. were not met. It is best to find 2-3 reliable partners and either make purchases from each in order of priority, or have an appropriate contract in case of an emergency.

The same workflow can be applied to buyers, clients, workers, premises - to any production resource. However, there are also disadvantages here, which consist in a significant increase in the costs of organizing production, logistics, and sales of manufactured products. In addition, it must be borne in mind that in the conditions of the monopoly market, which we often see in our country, this method is not always relevant.

Business risk analysis

Basic definitions

A business plan is a document that describes the company's development strategy, its internal resources, and the external market environment. The task of a business plan is to provide an economic justification for the company's activities, to correctly predict its cash flows, profits, profitability and a number of other indicators. The business plan describes the stages of development of the company, analyzes its competitors and development prospects.

The table briefly describes the main sections of the business plan and their content. Depending on the specific industry and business goals, the business plan may contain other sections.

Section of the business plan Section Contents Firm and its business model Analysis of the relevance and prospects of the business model, general description of the firm Product Detailed description of the firm's product and its advantages Market Analysis of the volume and dynamics of market development, consumer demand, industry development prospects Competitors Analysis of competitors, their development strategies Finance Cash flows of the organization, revenue, profit, profitability, EBITDA and other economic indicatorsProductionAnalysis of production resources and processes of the organizationMarketingMarketing strategy of the company, advertising and promotionOrganizational structure and personnelDescription of the structure of the company, a brief summary of management and key employees RisksEvaluation and prevention of negative situations arising in the course of the company's activities

Entrepreneurial risk is the risk that a firm will not achieve its intended results. Thus, the invested funds, resources, time and effort will be lost. Risk is also understood as the danger of economic damage in the course of doing business. Business risk analysis is a necessary element of a business plan; without it, the document loses its meaning. It is the identification and prevention of risks that give a business plan weight in the eyes of entrepreneurs and investors.

Business risk analysis

Business Risk Classification

General description of entrepreneurial risks is presented in the table.

Natural disasters Earthquakes, hurricanes, tsunamis, etc.

Business risk analysis

Basic definitions

A business plan is a document that describes the company's development strategy, its internal resources, and the external market environment. The task of a business plan is to provide an economic justification for the company's activities, to correctly predict its cash flows, profits, profitability and a number of other indicators. The business plan describes the stages of development of the company, analyzes its competitors and development prospects.

The table briefly describes the main sections of the business plan and their content. Depending on the specific industry and business goals, the business plan may contain other sections.

Section of the business plan Section Contents Firm and its business model Analysis of the relevance and prospects of the business model, general description of the firm Product Detailed description of the firm's product and its advantages Market Analysis of the volume and dynamics of market development, consumer demand, industry development prospects Competitors Analysis of competitors, their development strategies Finance Cash flows of the organization, revenue, profit, profitability, EBITDA and other economic indicatorsProductionAnalysis of production resources and processes of the organizationMarketingMarketing strategy of the company, advertising and promotionOrganizational structure and personnelDescription of the structure of the company, a brief summary of management and key employees RisksEvaluation and prevention of negative situations arising in the course of the company's activities

Entrepreneurial risk is the risk that a firm will not achieve its intended results. Thus, the invested funds, resources, time and effort will be lost. Risk is also understood as the danger of economic damage in the course of doing business. Business risk analysis is a necessary element of a business plan; without it, the document loses its meaning. It is the identification and prevention of risks that give a business plan weight in the eyes of entrepreneurs and investors.

Business risk analysis

Business Risk Classification

General description of entrepreneurial risks is presented in the table.

Natural disasters Earthquakes, hurricanes, tsunamis, etc.

Currency risks Fluctuations in exchange rates, changes in the principles of currency regulation.

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