Types of risks
It's a good idea to understand the different types of risks your business may face so you can recognise and plan ahead for them.
Risks can be:
- opportunity-based – risk from choosing one option over other options
- uncertainty-based – risk from uncertain or unknown events such as natural disasters or loss of suppliers
- hazard-based – risk from dangerous materials or actions.
This type of risk comes from taking one opportunity over others. By deciding to commit your resources to one opportunity, you risk:
- missing a better opportunity
- getting unexpected results.
Opportunity-based risks for a business include moving a business to a different location, buying a new property, or selling a new product or service.
This type of risk comes from uncertainty around unknown or unexpected events. It’s hard to predict these events and the damage they can cause. It’s also hard to control the damage once these events occur.
Examples of uncertainty-based risks include:
- damage by fire, flood or other natural disasters
- unexpected financial loss due to an economic downturn, or bankruptcy of other businesses that owe you money
- loss of important suppliers or customers
- decrease in market share because new competitors or products enter the market
- court action.
To reduce the impact of uncertain events on your business, you can do things like:
- develop an emergency management plan to reduce the damage to your business in an emergency
- keep a supplier database to help you manage your stock and equipment
- seek and use regular feedback from your customers and other people you deal with in your business
- check your business environment regularly for risks such as changes in trends and customer expectations
- seek expert advice every now and then to check the financial health of your business and to get advice on how to improve your business.
These types of risks come from dangerous situations in the workplace.
Some common examples include:
- physical hazards caused by high noise levels, extreme weather or other environmental factors
- equipment related hazards caused by faulty equipment or poor processes when using equipment such as machinery
- chemical hazards caused by improper storage or use of flammable, poisonous, toxic or carcinogenic chemicals
- biological hazards caused by viruses, bacteria, fungi or pests
- ergonomic hazards caused by poor workplace design, layout or equipment use
- psychological hazards caused by bullying and harassment, discrimination, heavy workload or mismatch of employee skills with job duties.
Risks that you must manage
You're required by law to manage some risks. For example, you must manage or reduce the risk of:
- accidents and injury by making your workplace safe under workplace health and safety (WHS) laws
- customer complaints by treating customers fairly under Australian Consumer Law
- injury or harm to employees by having workers’ compensation insurance
- damaging the environment by meeting the environmental laws that apply to you.
Learn more about the insurances you may need in our insurance and risk management section.