Corporate Risk Keeps the World Spinning
isk is a part of life: fact. Without risks there would be no need to plan and organize corporate strategy and the sectors would fuse into one. Luckily that is not how corporations function. In the world of business, risks are made every day, from employing staff with the intention to make sales; to buying large quantities of stock. But just because businesses have to deal with risks, it doesn’t mean that they have to be at the mercy of them. By having a clear idea of what corporate risk is able to avoid huge repercussions from risks they take. There are three main categories of corporate risk: physical risk, which entails the potential destruction of buildings and other physical assets. Then there is intellectual risk, which entails the potential exploitation of a company’s product and/or brand and finally financial risk, which entails the potential loss of value in a corporation’s portfolio.
It is important that a corporation minimizes its corporate risk in all of these areas.
An often overlooked areas involving corporate risk is the physical aspect. By having a physical location, all corporations are at the mercy of ‘Mother Nature’ as well as ‘governmental nature’, (from changing laws). Make sure you take our insurance policies to protect against natural disasters, such as hurricanes, that are common in your area. In finding out what my affect you, you can think of the possible effects and protect against them, thus reducing the risk. This issue only applies to those that have companies in such industries that are either snow resort related, such as Tokyo etc. Businesses in the UK rarely have to worry. However, the changes that the government, but also the EU makes can have a big influence, for example it is possible that laws on contracts can be made to stop the limited liability clause. This may seem far-fetched, but such things have happened before with the removal of the death clause.
Another aspect of corporate risk that needs to be kept in mind is called intellectual risk. When any company makes an innovative product, there will always be other individuals or businesses that want to profit from that innovation. Normally this would not be a bad thing, as long as the original innovator receives payment for their idea. Unfortunately this is not always the case. By applying for the proper patents to protect a company’s innovations, and applying for copyrights for a company’s brand name, a company can effectively protect its efforts. Without such protection, any company will be at the mercy of rogue replicators and copycats.
The final, and most important corporate risk, is financial risk. Money is the lifeblood of any business, and no money means no business. By creating a derivative in the form of contract with another company, in exchange for a percentage of the overall profit, a business can in effect make the lion’s share of the profit and have no real risk.
It is the purpose of businesses to make high profits whilst taking the minimum amount of risk. While it would be impossible to eliminate all risk, by keeping corporate risk in mind and planning well corporations are able to take narrow in on possible weaknesses, so never forget the importance of a business plan.
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