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