Risk in a company, expresses it in financial terms: in the potential variability of its assets, earnings, cash flow or in the services it has to supply. The following are some of the wide ranges of uncertainties, which threaten a business. As will be seen in this course, the possibility of loss is not limited to the obvious direct consequences, and the results of the risks taken may not necessarily be adverse.

Types of Risks in Organization

According to Harper (1954), risk expresses itself in a company in financial terms: in the potential variability in its assets, earnings, cash flow or in the services it exists to supply. The following are some of the wide range of uncertainties which threaten a business. As will be seen, the possibility of loss is not limited to the obvious direct consequences, nor should the results of these risks necessarily be wholly adverse.

natural perils

Damages by fire, windstorm, flood or other natural catastrophes are probably the most apparent threats to a company’s assets. The interruptions that result are the chief threats to its earnings, to increased

Prices for surviving stocks and for the products produced when operations resume.

Loss of Personnel

Death or injury to employees may involve the obvious direct costs of compensation for the injury, or insurance premiums to cover cost, time

loss at the time an accident occurs, and possibly demand fines for breaches of legislation. There will, however, be indirect costs as well – for the time spent in investigating that accident and in compiling the necessary reports and attending any subsequent legal proceedings, the losses of production which stems from any property damage associated with the accident, the time spent by staff who may not have been directly involved in the accident, and any industrial relations problems that the apparent lack of safety may causes. There is the cost of recruiting or training someone else to carry out the injured employee’s task. This could be considerable where special skills or knowledge are involved. Loss of a key employee, for example in a research-based company, could have a disastrous effect on the business.

Labour Risk/Loss

Even in the absence of accidents, employment involves risks for a company. The availability of suitable labour may be fundamental to its success. Vulnerability due to staff dissatisfaction may also be crucial and measures should be introduced to prevent the possibility of a lengthy withdrawal of labour or lack of co-operation.

Liability Risk/Loss

Every business faces the possibility that a single event could involve it in crippling liabilities to third parties. For many companies these days, particularly those supplying products to the USA, this is one of the chief threats to be faced. The risk of liability is, in any event, worse for being capricious. It bears no relation to the size of the company, or the value of what it owns, and once the chain of events that leads to be liability begins, it is largely fortuitous whether the loss results will be trivial or serious.

The time span of liability risks is increasing all the time. Limitation periods have become much less rigidly enforced and liability may now be incurred as a result of circumstances which happened many years ago, and even where the possibility of injury or damage was unsuspected or discounted at that time. The effect of long-standing liabilities on asbestos firm in recent years has provided a dramatic example.

Technical Risk/Loss

The industrial scene is rapidly being transformed from one where change happened at a pace which gave time for adjustment to it, time to adapt methods of action and thought to it and time to handle it, to one where change occurs at a pace which makes ordered and adequate preparation for it much more difficult. The time span between researches discovery being made and its incorporation into standard technology is shortening all the time, and there is an increasing risk that the performance targets set for a new plant may not, or even cannot, be attained. The introduction of a new process carries risks, which could have either positive or negative results. It could produce all the benefits expected from it. On the other hand, if it were late coming on stream, or if full-scale production threw up unexpected problems, the result might be a serious loss.

Marketing Risk/Loss

The launch of any new product involves the risk that, however well the market has been researched, customer may reject it. The proportion of new products, which survive to gain a significant market share, is very small. Even if it becomes established, there is always the possibility that a change in needs, attitudes, taste or fashion may render it obsolete. Equally, fashion may revive an apparently superseded product, as the vogue for blue jeans did for non-fast indigo dyes.

Political and Social Risk/Loss

Until recent years, political risk could be defined as the risk of nationalization, sequestration or other government intervention, but it is now used to include acts of terrorism and political motivated hi-jacking and kidnapping. Political action need not, however, be as extreme as that to introduced variability into a company’s fortunes. The introduction or abolition of grants or local incentives industry may have either a favorable or an adverse effect on its business, as may change in legislation affecting its production method, its products or its customers. Such changes may reflect a development in general public opinion or be the result of a campaign by a sectional pressure group which may be able to influence the way a company’s business is carried on, even in advance of legislation. Such non-governmental influences constitute social risk, which often resemble and are intertwined with, political risk proper.

Environment Risk/Loss

The risk of harming the world and those who live there has been a steadily increasing one for industry over the past century. The constraints upon permissible contamination of air, water and land are becoming more severe all the time, and it is a particular form of social risk which is arousing special public concern, as the arguments of the already strong environmental lobby find popular support in the wake of disasters.

The Severity and Frequency of Risk

According to Flixborough (1975), it is possible to divide losses into four types, with differing characteristics of frequency, severity and predictability.

Loss characteristics

Trivial losses are to be expected in any organization and can be met from normal operating budgets without inconvenience. Some loss prevention may be possible, but it may be uneconomic except for those types of risk which are normally acceptable, but which might have much more serious effects if circumstances were to change slightly.

Small losses, too, present little problem, unless their frequency becomes so high that their aggregate effect approaches that of a single medium loss. Fortunately, small losses can often be reduced by fairly simple loss control measures. Distribution of these losses over the year may vary in response to external factors; a bad spell of winter weather will increase  accidental damage to motor vehicles, for example, and this may occur before Christmas in one year and after in another, while it may be absent altogether in some years. There will thus be some fluctuation, but it will usually be possible to make a reasonable accruable prediction of the probable overall cost.  The medium losses would not cause the business serious concern if they happened at regular intervals, for then their cost could be expressed as an annual amount and provision made for it. But this is not the case and predictability is the variable, which causes concern, because one can never tell whether this is the year in which such a loss will happen and if so how many medium losses there will be. In the longer term predictability is responsible good but because of the period that must elapse before this is achieved; a business is likely to need short-term help in dealing with this type of loss. The large loss presents the most serious problems. A loss of this kind happens very rarely, but if it did occur, it could be catastrophic for the business. The difficulty arises from the fact that no one can foretell when such a loss will occur, or even if it will occur at all. It is in solving the problem of the large loss that insurance has its justification for large organization today.


Conclusively, we can see that there exist different types of loss/risk in organization among which are technical loss, marketing loss, liability loss, and labour loss and so on. Also, there are frequency and severity at which this form of risk can operate. Thus this blog successfully discussed trivial, small, medium, and large forms of loss in an organization. It is therefore important for any manager in any organization to watch out for the various types of loss/risks and evaluate the likely frequency and severity of such loses.

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