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 –

  1. An ethical brand image can lead to better reputation
  2. Can attract customers
  3. Can attract new employees and help retain the existing ones.
  4. Suppliers will be willing to supply goods and offer discounts
  5. Lenders may be willing to offer support
  6. Can provide a USP (unique selling point)

Disadvantages of being ethical –

  1. Increased cost of purchasing materials
  2. Expectations from the employees, customers, suppliers, etc.
  3. Additional cost involved