How to Take Risks in Business - Literature review Example

How to Take Risks in Business 21st, March Risk taking is an essential part of any kind of business. Before we apply risk taking in the case of a business, it is important to understand that life in itself is a risk, even though most individuals have not figured this out. Nonetheless, when people take risks in business, they face their risks and address them in different ways. Larsen (2006) believes that all business is risk, and that a company should be skilful enough to address its risk factors. Most people do not want to hear the word ‘risk,’ because associate it with some sort of danger or failure, and therefore, a large number of people in society have failed to address the various risks they are faced with in the most appropriate manner. As Rees (1977) notes, risk to many is not viewed as a thing that can result to anything positive. Some view it as a danger and others as some form of tension and to the extreme; some would view it as a possible loss. Nonetheless, risks are part of business, and any businessperson must plan and be prepared on how to handle them in order to avoid losses. According to Ferrell et al (2011), every business in the competitive world has to take charge of its own operations specifying clearly, what they really want to achieve. Whatever the specifications, they have to be informed of plans, and in fact lifelong plans and future aspirations and endeavours. The plans have the impact of helping the business in question visualize in the manner in which to attain the enjoyable heights in operations that have since only been dreams. Rees (1977) also identifies the importance of risk taking plan process, arguing that this process helps the owner of business to have a clear view of the goals of their business, as well as helping them achieve these goals. It is a fact that any opportunities that are normally realized in the life of any business, normally only opens the doors to the realities that businesses are faced with. The realities to achieve greater heights of business operation, realities to make greater profitability, realities for future business expansions and even the realities of beating all the competitors in the market of their operations and become the giants of the giants, holding closer to if not 100% of the market share (Rees, 1977). Risk taking in business is beneficial, if one succeeds in doing it. However, obstacles and challenges might present themselves in the way of achieving this, either at a personal level or at business level. These include assumptions, procrastinations, and fears. These are known to kill aspirations in business. Ferrell et al (2011) assert that fear is the mother of failure in any business. Fear will make one not to take risks by opening up to new opportunities in the market. When any individual in a business makes a decision to make an important step in their business toward what they aspire for, it is crucial for them to first understand that this decision comes with some risks, and therefore, the individuals must have planned on how they will handle those risks There are different risks in business. While some might cause the business to experience losses, others will strengthen the business, if approached well. In this context therefore, we are dealing with those risks that will strengthen a business by making the business to be recognized, to get the required attention, and to forcefully make it forward in its operations. Such risks therefore, are those that are likely to help a business meet its goals and aspirations. Therefore, any business willing or desiring to reach greater heights should consider accepting these risks and adopting them in order to achieve a better performance. Ferrell et al (2011) notes that most of these risks are demanding in nature, and require high levels of commitment, but in the end, they are worthy taking, as they bring a positive change in the business. There are different types of risks, and these vary depending on the nature of the business. These include business risks, financial risks, and foreign exchange risks if the business deals with import and export business. Others types of business are faced with economic risks, speculative risks and dynamic risks, pure risks, static risks, and many others. Risks are risks, and only their names would make a difference. The difference in risks will only in the way in which they are dealt with. Different individuals and different businesses adopt varying strategies of handling the risks they experience. Nonetheless, all businesses must adopt good and effective risk management plans, as these are paramount and a must for risks to be handled in the most appropriate way, which will result in positive results and more value in the business (Rees, 1977). According to Larsen (2006), the success of a business does not wholly lie in risk management. As part of risk taking, a business must be able to also be able to plan and face the uncertainties the business might face unexpectedly. These mainly comprise the hidden risks, which a company does not get into deliberately. For example, in past years, most companies unexpectedly experienced on their balance sheets, large, unfunded pension liabilities. Other unexpected risks include unexpected rise in price, political instability, terrorism, lapses in corporate governance, and changes in supply chain, among others. This is because such uncertainties might lead to unproductivity of a business, if not well addressed. However, financial markets can be of great benefit in helping companies solve losses due to hidden risks (Larsen, 2006). While a business is still in the process of planning to take risks, it is crucial that one realizes that the risk to be executed should not be directed to the operations of the business alone. Similarly, the impacts of risks are not experienced in business operations only, but on the overall business. Therefore, when planning for business risk taking, other spheres of the business, apart from business operations, must be considered. The effects of a risk also extend to other businesses in the same industry, and therefore, do not affect only the business that undertakes them. This also affects the suppliers to the business, as well as the surrounding community, which forms a major stakeholder of the business. Therefore, the gravity of the impact on each of the business stakeholders must be analysed to ensure there is smooth operation and minimal impacts on the other major stakeholders. In fact, it is better if the business ensures that its stakeholders are not affected in any detrimental way, because of the business’ risk taking (Ferrell et al, 2011). Having seen the necessity and need towards taking a risk in any form of business entity. Since we have identified a variety of benefits that result from taking certain bold business risks, it is therefore, important to ask ourselves the questions, how then do we take such risks? What forms and procedures are there towards taking such advocated for risks? These questions will act as guiding steps to any business that is interested in risk taking. They will help a business to identify an approach and set strategies, through which they will achieve their aspirations through risk taking. The response to these questions is quite simple and easy to figure out. Risks as noted are inherent to any form of business and therefore people must be extremely smart when taking such a difficult risk. Therefore, a business has to follow various steps order to reach a decision. First, the business has to determine the activities, which are risky, and distinguish them from those, which are not risky. Secondly, the business must attempt to figure out the extreme impacts of the risks to be beaten, as well as the least impact of the risk. All these will be determined with regard to the affordability of the business, and its financial position. In addition, a business has to perform the calculation of the exactness of each possible scenario. To achieve this, a business might consider using the statistics that have been taken from previous cases or the new data collected. This would allow the prediction of the various outcomes and variables that are likely to influence the outcomes as well as results for the risks undertaken (Rees, 1977). Fourth, the business is required to smash, and even do away with the risk and risk factors, if it is possible. This is relevant in that better achievements are more likely to be realized if it is possible to take a risk after minimizing the risk factors or destroying them. Therefore, minimizing of risks leads to better outcomes of risk taking. Lastly, in the process of business risk taking, it is only sensible that in as much as loss may occur, a business must choose and anticipate “big win” as the outcome of their business risk taking (Rees 1977). This means that the risk should only be undertaken when the smaller percentage indicates signs of success. We have already seen the factors to consider before taking a risk. It is now the turn to see how to take the risks. A business can take risks in a variety of ways. However, any serious decision maker should be geared towards taking the smart risks only (Rees 1977). Before taking a risk, one must have a solid reason for taking the risk. Before a risk taking, a business must ensure that the risk aims at elevating the performance of the business. This therefore, means that a business must analyse the impact of the risk carefully. Analysing the impact of the risk will increase the success of a company. According to Likierman (2005), risk analysis can be conducted with regard to employees’ pay, company’s operations, and shareholders, put into perspective. Secondly, a business must ensure that fear is kept at bay, as this will not do any good to the business’ risk taking process. In addition, “you had better be doubtful but not fearful.” This is virtually for prosperity and success to be achieved through the analysis of the risk, as well as the process of risk taking (Nickels et al, 2005). Thirdly, a company must undertake risks efficiently, with the willingness of its key decisions makers. These must always be aware and updated of the changes around their environment. Changes are dynamic and come with a variety of impacts on the environment. People therefore, must handle changes with the care they deserve so that their negative impacts are drastically minimized (Nickels et al, 2005). Likierman (2005) argues that risk assessment is an integral part of company performance assessment and decision making, although most companies do not consider this. He emphasizes that a company must incorporate the risk factor in its performance assessment. This is because risk management equally influences businesses, therefore, should not be considered an optional extra. It is also possible for a business to implement risks through the provision of incentives. Incentives have the impact of attracting productive employees, and this leads to reduced levels of employee turnover for a company in future (Nickels et al, 2005). Through performance assessment, a company must reward its employees with regard to how they have managed overall risk in the company (Likierman, 2005). The last and not least way of undertaking risks is coming out of your comfort zones and being in a position that you are able to break the anxieties and tensions that come with risk taking (Rees 1977). This is because risks are for the enterprising people and strong hearted. A faint heart will remain in its cocoon and comfort zone, thus might not think about taking risks as a way of opening up to new opportunities. Finally, in the field of any business the motto should always be “High risk high return.” Evidence from different firms that have undertaken risks in the past shows that their creative risky ventures resulted into growth and expansions as opposed to those that remained stuck with the limited resources they own. In the end, this evidence proves that a nation should not attach any negative thinking to taking risks. References Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2011). Business Ethics: Ethical Decision-Making and Cases (8th ed.). Mason, OH: South-Western Cengage Learning. Larsen, T. P. (2006, Nov 29). To understand risk - ask those who are in the know VIEWPOINT: Unforeseen dangers are a nightmare for businesses. Can better preparation help? Financial Times. Retrieved from http://search.proquest.com/docview/249945626?accountid=45049 Likierman, A. (2005, Sep 23). Assessing risk is key to good performance when judging company performance, risk is rarely mentioned. but risk assessment is a crucial part of any decision-taking process and overall business success must be considered in the light of how well it is managed. Financial Times. Retrieved from http://search.proquest.com/docview/249712579?accountid=45049 Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2005). Understanding Business (7th ed.). Boston: McGraw-Hill/Irwin. Rees, D. (1977). Risks. Nashville: T. Nelson. Read More