Opportunities, risks, legal and ethical decisions
Opportunities, risks, legal and ethical decisions
An opportunity is a time or an event that makes it possible to do something.
Examples of opportunities in a business environment are:
- Changing needs and wants
- Changes in tastes and preferences
- Change in technology
- Change in government policy
A risk is a chance of gaining or losing something as a result of an action taken.
Types of risks faced by entrepreneurs are:
- Financial risks
- Economic risks
- Health, safety & environment risks
- Human resource risks
- Production risks
The stages of risk management:
- Stage 1: Identify the risks
- Stage 2: Analyze the implications of each risk
- Stage 3: Is the risk worth taking – (if not worth, then stop the project)
- Stage 4: If worth taking the risk, then how to manage the risk
- Stage 5: Monitor & review
Stage 1: Identify the risks –
Identify various risks possible to the entrepreneurship using methods of risk analysis such as SWOT, PEST.
Stage 2: Analyze the implications of each risk –
For each risk identified, consider the following;
- What are the chances of it happening?
- What are the potential consequences?
- Analyze the positive & negative effects
- Assess the potential negative effects against the potential rewards
- If possible rewards outweigh the negative risks, then proceed with the project.
Stage 3: Is the risk worth it? –
- This depends on the entrepreneurs attitude towards risk
- If he is risk averse, he may discontinue or if he is a risk taker he will proceed with the project.
Stage 4: Plan to manage the risk –
- Mitigate: try reducing the risk by changing the risk
- Accept: If nothing can be done about the risk, then set aside a sum to cover up any negative effects of risk
- Transfer: Pass on the risk to an outside agency who will be able to better manage the risk
- Eliminate: If you chose to avoid risk, you will have to give up on the positive impact of the risk.
Stage 5: Monitor and Review
Reducing Risk –
- Detailed research- PEST/ SWOT analysis
- Seek advice from formal / informal support
- Prepare a business plan
- Spread the risk through diversification. It is the process of selling products or selling to different markets.
Monitoring Risk –
Risks can change over time. Changes can happened due to internal and external factors that keep changing. Therefore risks have to be constantly monitored.
Attitudes to Risk –
- One can be risk averse, which means he avoids risk most of the times, or all of the time.
- He can also choose to be risk keen, or always ready to take risks as he might believe that’s the only way to grow his business.
- They can also be risk reducers, who take risks, but mitigate it enough to not harm their business if anything goes sideways.
Legal obligations –
- Employment- Contracts to be made to resolve disagreements. Minimum wage laws should be followed.
- Production, health & safety laws
- Laws relating to marketing and selling to protect customers
- Finance: laws regarding money invested to protect interest of shareholders.
Ethical Considerations –
- Ethics: Moral values and principles that govern a person’s behavior or the conducting of an activity.
- Being ethical involves actions and behavior that go beyond what is legally required
- Ethics and profit can conflict.
- An ethical firm considers the impact of its decisions on all the stakeholders
Advantages of being ethical –
- An ethical brand image can lead to better reputation
- Can attract customers
- Can attract new employees and help retain the existing ones.
- Suppliers will be willing to supply goods and offer discounts
- Lenders may be willing to offer support
- Can provide a USP (unique selling point)
Disadvantages of being ethical –
- Increased cost of purchasing materials
- Expectations from the employees, customers, suppliers, etc.
- Additional cost involved