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External Risks in Business

External risks are factors that originate outside of the business and can impact its operations or bottom line. External Risks in business we also call other risks. Other risks encompass various external factors like environmental changes, geopolitical shifts, and reputational issues. They can significantly impact business operations, requiring proactive planning and strong risk management strategies.

External Risk in Business

  • Recognize that "other risks" are diverse and often interconnected. Environmental, geopolitical, reputational, and technological factors can impact a business in unexpected ways.

  • Conduct regular risk assessments to identify potential vulnerabilities, particularly those beyond direct control, and prepare strategies to address them.

  • Develop flexible contingency plans. With unpredictable risks like natural disasters or geopolitical shifts, adaptable planning ensures a swift response.

  • Secure comprehensive insurance coverage and build organizational resilience. A robust disaster recovery plan is crucial for minimizing operational disruption.

  • Establish a strong crisis management strategy. An immediate, transparent response can mitigate reputational damage from negative publicity or social media backlash.

  • Invest in research and development to remain competitive, particularly in rapidly evolving fields where technological obsolescence is a key concern.

  • Stay updated on market trends, regulatory changes, and consumer behavior shifts to anticipate and counter potential risks.

  • Involve diverse departments in risk management. An integrated approach enhances the ability to foresee and respond to emerging challenges effectively.

Learning Materials

What are Types of Business Risks?

Business risks encompass a wide range of potential threats that can impact a company's operations, profitability, and overall success. Understanding these risks is essential for developing strategies to manage and mitigate them. Here are the primary types of business risks:

  • Environmental Risks: Natural disasters, climate change, and pollution can disrupt business operations significantly.

  • Geopolitical Risks: Political instability, trade policy changes, or international conflicts could impact global markets.

  • Reputational Risks: Negative publicity or social media crises can harm a company's brand and customer trust.

  • Technological Obsolescence: Rapid technological advancements can render existing tools and systems outdated quickly.

  • Other Factors: Economic shifts, regulatory changes, or evolving consumer preferences may also pose challenges.

Business Risk Examples from PrometAI

Here you can find several types of business risk examples with PrometAI.

  1. Environmental Risks
    Natural disasters such as earthquakes or floods could significantly disrupt our data centers and operations. To minimize this risk, we have established strong disaster recovery and business continuity plans.

  2. Geopolitical Risks
    Changes in international trade policies or political instability in key markets could affect our global operations. We stay vigilant, closely monitoring geopolitical developments while implementing strategies to mitigate their potential impact.

  3. Reputational Risks
    Data breaches or negative customer feedback could harm our brand image if not managed promptly. Our public relations team works diligently to address reputational issues quickly and effectively, maintaining a positive brand reputation.

  4. Technological Obsolescence
    Rapid advancements in AI and fintech might render some of our technologies outdated. To stay ahead, we invest continually in research and development, ensuring our technology remains innovative and current.

With these proactive measures, PrometAI safeguards against diverse risks, ensuring continuity and long-term business success.

FAQ

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Mission Statement

A mission statement is a brief description of an organization's fundamental purpose, outlining its goals, ethical approach, and core values. It is important because it guides the organization's strategies, communicates its purpose to stakeholders, and helps align internal efforts towards a common goal.

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Vision Statement

A vision statement is a forward-looking declaration that outlines an organization's future goals and aspirations, providing a clear and inspirational long-term direction. It is important because it serves as a motivational guide, influencing decision-making and shaping the strategic planning of the organization.

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Business Phases

Business Phases refer to the distinct stages of development and growth that a business undergoes, from inception to maturity.

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Business Stakeholders

Business Stakeholders are individuals, groups, or organizations with a direct or indirect interest in the business and can affect or be affected by its activities.

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Pain Points in Business

Pain points refer to specific problems that prospective customers of your business are experiencing.

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SWOT Analysis

SWOT Analysis is a strategic planning tool used to identify and evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business venture.

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Porter's Five Forces

Porter's Five Forces is a framework for analyzing a business's competitive environment and identifying the level of competition within an industry.

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VRIO Analysis

VRIO Analysis is a strategic tool used to evaluate an organization's resources and capabilities to discover competitive advantages.

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PESTEL Analysis

PESTEL Analysis is a strategic tool used to analyze the macro-environmental factors that can influence an organization's operations and performance.

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Strategy Canvas

The Strategy Canvas is a visual tool used in strategic management to understand the current competitive position of a company and explore new possibilities for differentiation.

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Business Roadmap

A roadmap is a strategic plan that outlines a business's vision, objectives, and the steps needed to achieve them over time.

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Allocation of Funds

Funding Allocation is the process of assigning financial resources to different areas of a business to support its strategic objectives and operational needs.

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Competitive Advantage Definition

Competitive advantage refers to the attributes that allow an organization to outperform its competitors.

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Marketing Strategy

Marketing Strategy is a comprehensive plan formulated to achieve specific marketing goals and objectives.

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Target Market

Target client groups are specific segments of the market that a business plans to serve and focus its products, services, and marketing efforts on.

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Competitive Analysis

A Competitor Overview provides an analysis of other businesses that offer similar products or services in your market.

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Market Overview

A Market Overview provides a comprehensive analysis of the industry and market in which your business operates, including size, growth, trends, and key players.

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Target Audience

Target Users are the specific group of individuals or organizations that a business aims to serve with its products or services.

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Market Size & Business Potential

SAM (Serviceable Available Market), TAM (Total Available Market), and SOM (Serviceable Obtainable Market) are metrics used to quantify the market opportunity for a business.

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Product Pricing

Product Pricing involves setting the right price for your product or service, balancing between cost, value to the customer, and market conditions.

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Organizational Structure

Organization Structure refers to the system of hierarchy and functional distribution within a company, defining roles, responsibilities, and lines of authority.

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Founder Team

The Founder Team refers to the group of individuals who initiate and lead the establishment and development of a business, bringing together their vision, expertise, and leadership.

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General Tasks

General Tasks are the various activities and responsibilities undertaken by a business to achieve its operational and strategic goals.

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Marketing Tasks

Marketing Tasks are specific activities and initiatives undertaken to promote a business’s products or services, enhance brand visibility, and drive sales.

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Business Development Phase Tasks

Business Phase Tasks in a business plan outline the specific activities and objectives to be accomplished during each distinct phase of the business’s development and growth.

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Operational Risks

Operational Risks refer to the potential risks arising from a company's day-to-day business activities, which can affect its performance and reputation.

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Regulatory Risks

Regulatory Risks refer to the potential for changes in laws and regulations that could adversely affect a business's operations, financial performance, or compliance status.

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Strategic Risks

Strategic Risks are potential threats that can affect the viability of a company's business strategy and impact its ability to achieve its goals.

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Finance Risks

Financial Risks are potential dangers that could negatively impact a company's financial health, affecting profitability, cash flow, and overall financial stability.

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Revenue Formation Narrative

The Revenue Formation Narrative describes the process and strategies through which a business generates its income, detailing the key revenue streams.

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Revenue Calculations

Revenue Calculation involves quantifying the total income generated from business activities, typically calculated over a specific period.

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COGS Formation Narrative

The COGS Formation Narrative explains the various costs directly involved in producing the goods or services a business sells, crucial for understanding the company's profitability.

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Cost of Goods Sold (COGS) - Meaning & Calculation

COGS Calculations involve quantifying the direct costs associated with the production and delivery of goods or services, essential for understanding a business's gross margin.

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SG&A Personnel Expenses

SG&A (Selling, General, and Administrative) Personnel Expenses refer to the costs associated with the company's employees involved in selling, general, and administrative functions.

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SG&A Other Expenses

SG&A Other Expenses include all non-personnel-related operating expenses incurred in the selling, general, and administrative activities of a business.

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Business Income Statement

An Income Statement, also known as a Profit and Loss Statement, is a financial report that shows a company's revenues, expenses, and profits or losses over a specific period.

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Balance Sheet - Financial Statement

The Balance Sheet Statement is a financial document that presents a company's assets, liabilities, and shareholders' equity at a specific point in time, offering a snapshot of its financial condition.

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Cash flow Sheet Statement

The Cash Flow Statement is a financial report that provides an overview of the cash inflows and outflows from a company’s operating, investing, and financing activities over a period.

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Estimation of Cost of Capital

The Estimation of Cost of Capital is the process of determining the company’s cost of funding its operations and growth, both through equity and debt.

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Cost of Capital Methodology

The Cost of Capital Methodology is a systematic approach to calculate a company's cost of capital, incorporating various risk premiums using the Capital Asset Pricing Model (CAPM) and other adjustments to reflect specific business risks.

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DCF

Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.

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Multiple based valuation

Multiple-Based Valuation is a method of valuing a company by applying industry-specific valuation multiples to a financial performance metric of the business.

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Asset based valuation

Asset-Based Valuation is a method of determining a company's value based on the total net asset value of its tangible and intangible assets.

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Glossary

The Glossary component of a business plan is a section dedicated to defining key terms, abbreviations, and jargon used throughout the document, ensuring clarity and understanding for all readers.

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Disclaimer

The Disclaimer component of a business plan is a statement that limits the liability of the company and specifies that the information provided is for general guidance only.

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