Hazard risk can be defined as any disruption that affects the normal functioning of a business. The disruption can range from natural disasters, malicious acts, terrorism, or even theft in the business. Traditional hazards risks bring about property damages, and sometimes they are caused by natural disasters that we cannot control on how they happen. Different traditional hazard risks tend to affect a business differently. They include credit, political property, and trade disruption risks. All these traditional hazards risks are triggered by different situations and therefore a business needs to ensure they purchase insurance coverage against all these traditional hazards risks. Credit risks are one of the oldest traditional hazards which come about as a result of default in payments by the customers. Taking insurance for the risk will ensure that the business is still abler to function despite being owed.
The property risk can be triggered by damage to the properties, and therefore a business needs to take a cover that will ensure that there is property replacement in case the damage occurs. With all these traditional risks the business owners need to understand the different insurance coverage that they can afford and ensure that they purchase to protect their business (Schlegel & Trent, 2015). The traditional hazards risks tend to bring huge losses to the business and sometimes they can cause a downfall of a business, and therefore it is important to be very cautious as a business owner.
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Those in business can attest to the fact that there are many risks involved in the business. The different risks in business tend to threaten its ability to achieve and maintain its financial goals, and therefore the business owners need to ensure that they have a planning layer out on how they can achieve their financial targets uninterrupted. The different risks are brought about by different factors such as the increase in business competition, a rise in the prices of raw materials, which affects the cost of production. Different risks face the business which includes the operational risks that can be defined as the risks or hazards that happen in the business’s system or process as it is handling its daily functions (Araz et al., 2020). Four pillars tend to be affected by the operation's risks, and the pillars include, demand risk, supply risk, process risk, and environmental risk.
The supply risk explains why a supply problem in a business will disrupt the normal functions of the business. The logistics risk is one of the operational risks found within the supply risk (Schlegel & Trent, 2015). The logistic risks include transportation shipping and warehousing, and anytime they are affected, a business faces a supply risk, and therefore it is crucial for the business management to choose the best management strategies that will protect the business from facing the supply risk. Within the demand risk pillar, there are operational risks such as product risks. Any business should ensure that they do not face product failure and have any warranty issues with their products for them to maintain their customers’ loyalty. The new product introduction tends to be one of the greatest operational challenges for many businesses when there is poor planning and communication during the launch of the new products (Chapelle, 2019). The business needs to come up with great strategies that it can use to help it deal with the risk of the product.
The process risk pillar can be described as the loss in revenue faced by a business as a result of inefficient and ineffective processes in the business. There are several operational risks within this pillar such as the hard risk. Hard risk comes about when there is poor quality control and unreliable systems. If there are process breakdowns and any criminal activities, a business faces a hard risk (Schlegel & Trent , 2015). Coming up with permanent solutions for the hard risk will protect the business from unnecessary losses. All these risks can cause huge damages to businesses, and therefore the management needs to ensure different strategies can be used to protect the business, and ensure that the normal functioning of the business is not disrupted.
References
Araz, O. M., Choi, T. M., Olson, D., & Salman, F. S. (2020). Data analytics for operational risk management. Decision Sciences , 51 (6), 1316-1319.
Chapelle, A. (2019). Operational risk management: Best practices in the financial services industry . John Wiley & Sons.
Schlegel, G. L., & Trent, R. J. (2015). Supply chain risk management: An emerging discipline . Crc Press.
