Risk Management In Entrepreneurship

Generally, existence is saddled with innumerable risks. No matter how careful an individual is, the chances of loss may not be averted as long as such one is limited in knowledge. This is not abstract in business. It is very real and practical, this is because of human factor involved in business.


This is the degree of probability of loss, the amount of possible loss. This simply implies that anything that has any chances of loss is very risky. If that is the case, the entrepreneur must contend with the risk in business, some risk may be avoided, minimized while others are unavoidable. Risk in business comes in different shapes and sizes, there is risk of loss of capital invested if business fail, risk of shoplifting, risk of important key staff leaving the organization, risk of fire getting away that factory or  production sites, risks of customers not patronizing the products or not paying for good bought on credit (i.e bad debt), risks of obsolescence or obsolete production or even technology, and so on. All these account to the fact that an entrepreneur must devise ways of evaluating and managing them if the business is to succeed.

In this article i am going to list out the types of risk and how we can manage these risk that may tend to occur in our business. Now here are the types of risk;

Types Of Risk


This represent any risk taken by an entrepreneur in order to make profit. It is one in which an entrepreneur takes a chance to make extra money by buying new machinery, acquiring more inventory and making other decisions in which the probability of loss may be relatively low and the amount of loss is known. For instance, when a businessman decides to build a factory in order to manufacture a product that will yield profit. Such an entrepreneur is described as taking speculative risk.


When losses threaten with no chance of making profit, such risk is said to be a pure risk. This is a risk that its occurrence in business leads to losses while their non-occurrence does not put any profit into the organization. This type of risk poses serious threat to the survival of the business. For instance, government laws which may stop the operation of the business is a pure risk.

Management Of Risk

These risk can be manage through the following ways:

1. Risk Reduction

This arises when the prevention measures are put up in the form of safety inspections, accident stoppage measures and other similar avenue through which risk can be reduced, risk of shoplifting is no doubt on the increase but this business risk has been reduced through mounting of mirrors that monitors customers to detect their crimes. Hence, we can  say that the beginning point of risk reduction management is to institute sound risk prevention techniques.

2. Risk Avoidance

The above risk management factor portends that some risks can be avoided completely by ensuring that firm do not engage in such hazardous task or job. Knowing something that will affect your customers taste and avoiding it will prevent losses in the business, by so doing, that chance of losses that would have arisen from such business will be avoided.

3. Self Insuring

The importance of this risk management approach is to set outside some physical cash (money) to take care of any routine claims that will arise in the future. Big anticipated losses are handled through the purchasing of insurance policies to cover them, when one engage in self-insurance, which likened to provision for bad debts reduces the huge cost emanating from outside insurance policies.

4. Risk Transfer

This is a type of risk management method which requires that firms should buy insurance policies from corporate insurance firm to cover huge losses. When the envisaged losses are too high, syndicate insurance financing will be the ideal option.


Owning to high cost of covering potential hazard in business, one must understand the various insurance policies and make intelligent choices from among them. It is this serious knowledge requirement about risk management that gave rise to the three rules of risk management below;

  1. Do not risk more than the business can afford to lose
  2. Do not risk a lot for a little
  3. Always consider the odds.

I hope this few point of mine was helpful. please share with friends and leave a comment below on the comment box, and please subscribe for notifications on our next article. Thanks

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