What Types of Risk Do Businesses Face?
Learn how financial, strategic and cybersecurity risks can arise when a business makes changes, with clear examples and an A Level Business exam tip.
Businesses face financial, strategic and cybersecurity risks when they make changes. Financial risk concerns money, strategic risk concerns the success of the business’s plans, and cybersecurity risk concerns its digital systems and information. A single change can create all three.
Financial risk
Financial risk is the possibility that a change will damage the business’s finances. For example, buying new equipment may cost more than expected, while the extra sales it was meant to generate may not arrive. The business could then struggle to cover its costs or repay borrowing. Managers can estimate costs, forecast cash flow and keep funds available for unexpected expenses.
Strategic risk
Strategic risk is the possibility that a major decision will prevent the business from meeting its long-term objectives. A retailer might switch to selling mainly online, only to find that its customers still prefer visiting stores. Even if the website works well, the change may reduce sales. Market research and testing a change on a small scale can help managers judge whether the strategy is likely to work.
Cybersecurity risk
Cybersecurity risk is the possibility of harm from unauthorised access, data theft or disruption to digital systems. Moving customer records to a new online platform, for example, could expose personal data if access controls are weak. This could interrupt trading, create costs and damage customer trust. Staff training, access controls and backups can reduce the risk.
Exam tip: Do not treat these as completely separate problems. A cyberattack could cause a financial loss and undermine a strategy to grow online. In an answer about change, identify the specific change, explain how a risk could arise, and link it to a likely effect on the business.
