Understanding Risk

While there are many types of risk found in agriculture, the simplest way to categorize them is into three broad categories. Understanding Risk


Types of Risk

BUSINESS RISK

Business risk, which can also be categorized as short-term or operational risk, impacts the return on assets and includes price, costs and productivity. Business risks are relatively easy to manage in that they have clear approaches to managing them, low impact outcomes or a low probability of occurring.

The seven main categories of business risk in agriculture (as suggested by the USDA) are as follows:

 

 NEXT: Learn how to analyze your risk. Explore case studies to learn more about each risk type.

FINANCIAL RISK

Like business risks, financial risks are considered short term, operational risks that are fairly easy to manage, and can impact return on equity. They include:

 NEXT: Learn how to analyze your risk. Explore case studies to learn more about each risk type.

STRATEGIC RISK

Strategic risks, on the other hand, are long-term risks that can be more difficult to assess and can include trends and variability in the business climate, and other factors usually outside of the organization’s control. Oftentimes, strategic risks can be discovered by asking the question: What risks does my current business strategy overlook?

The fundamental sources of strategic risk can be categorized into three areas:

 NEXT: Learn how to analyze your risk. Explore case studies to learn more about each risk type.

Submitted by Mike Boehlje