affected by political risks and a software firm has to be prepared
for the risk that a competitor will produce a better product. A
company which is a market leader may run the risk of being
threatened by competitors – to what extent does the company
monitor the competition, regularly assess customer requirements
and seek improvements in the product or level of service to
maintain competitive edge? A business may rely on one cus -
tomer for 80 per cent of its sales. What happens if this customer
looks elsewhere? How big is this risk? What can be done to
lessen it?
These situations and the questions that arise from them are all
matters that should be dealt with by a systematic approach to
risk management.
CATEGORIES OF RISK
The categories of risk are:
■ commercial risk – increased competition, better products or
services available elsewhere, price cutting by competition,
problems with suppliers, key customers failing or switching
their business elsewhere;
■ economic risk – recession in the United Kingdom or overseas
markets, adverse exchange movements, worldwide decline
in prices;
■ political risk – adverse political decisions (eg legislation, tax
changes, regulatory changes, Office of Fair Trading investi-
gations);
■ technological development – new developments making the
company’s products or services obsolescent;
■ health and safety – the risk of illness, accidents or injuries at
work;
■ natural disasters – fire, flood, riots etc;
■ crime – embezzlement, fraud, computer crime, industrial
espionage;
■ legal – the risk of successful actions against the company
causing loss of money and reputation;
■ fashion – changes in fashion affecting demand.
How to Manage Risk 177