Your business is subject to risks that can result in losses or even the failure of your company. Business decisions and your company's practices contribute to the level of risk your business faces. Most company risks falls under two different categories, business risk and operational risk, with external and internal forces playing a part.

Operational Risk

Operational risk rises from your company's internal decision-making and practices. Even if your business idea is sound and you have a solid customer base, an operational risk can sink your business. For example, if your company doesn't have good Internet security and your customers' personal information is exposed, you'll have to deal with damage to your company's reputation and the cost of the fallout. Other operational risks include holes in your supply chain, poor performances from vital employees and weak quality control, which may lead to inferior products and services.

Business Risk

Business risk covers all the risks associated with your company's services, products and strategic decisions. Deciding to enter a new service or product into your market is a business risk, because you don't know how or if customers will respond. If your company enters into a business partnership with another company, you're taking on a business risk, because the partnership has the potential to hurt your business if it goes poorly. A rise in the cost of materials necessary for your product and other unforeseen business events that impact your manufacturing or sales also constitute business risks.

Operational Risk Management

You can control operational risk by implementing control programs that manage the types of internal risks your company faces. Information from other sources, such as negative events experienced by established competitors in your market, can help identify potential operational risks present in your own company. Developing backup plans in case you experience an operational setback, such as the failure of necessary equipment, also helps manage operational risk. You must fully train your employees on the control procedures to maximize effectiveness.

Business Risk Management

Managing business risk is often difficult, since you can't anticipate external forces, such as a rise in material cost or how customers will react to a new service or product. Using market research and creating an accurate estimation of the true cost of failure before taking a business risk can help you manage risk to some degree. If you know how much a particular business decision will cost you if the result isn't what you wanted, you can decide whether it's advisable for your company to take that risk.