Introduction
Establishing and running a successful business is a very challenging task to entrepreneurs. Many entrepreneurs waste a lot of time and funds in establishing fantastic business plans that fit for their potential business. However, the process of managing risk is often disregarded by entrepreneurs who erroneously suppose that losses encountered in businesses are best tackled once the business has been materialized. Risk is termed as probable loss or other intense advent that is accompanied with capacity to impede the financial immovability of a business (Fischer et al 2013 p35). On the other hand, Risk management refers to the capacity to deal with the risk so as to reduce its impact on the daily business activities. If efficiently managed, there will be a minimized effect of the loss on the business.
Risk management is the process of identifying, assessing, and prioritizing of risks whereby entrepreneurs coordinate and use their minimal resources, observe, and control the likelihood of occurrence and impact of unplanned hazardous events in order to or to capitalize on the realization of opportunities. The entrepreneur is generally viewed as a business leader and innovator of new thoughts and business processes. (Ramoglou, 2013 p.435) They generally have attributes of essential leadership such management skill and strong team building capabilities.
Interrelationship between Risk Management and Entrepreneurship
Entrepreneurship is a risk taking event. This means that there is a very significant relationship between risk management and entrepreneurship. Knowledge concerning effective risk management is an important tool for entrepreneurs to minimize business risks. Consequently, career experiences give entrepreneur confidence concerning what works well in business thereby end up establishing successful business(Zbilgin, 2009 p 362). As a risk manager. An entrepreneur has to withstand along of dangers in an enterprise management. Without risks, venture cannot possibly be managed. This is due to the fact that risk is entangled pertinently with business management in view of having uncertainty factors ( Dutta 2012 p.109)
.
The business world is composed of many risks. This means that an entrepreneur needs to have a tactful approach to running businesses as to achieve their goals. For appropriate risk management, business owners need to a prioritize and make sure that the risks with the greatest loss or impact and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order (Kowert,& Hermann 1997 p622). In performance the process of assessing overall risk can be complex, and complementary resources used to alleviate between risks with a high likelihood of incidence but lower loss versus a risk with elevated loss but lower likelihood of incidence can often be mishandled.
When establishing and running businesses, entrepreneurs need to understand that there are a substantial number of risks that lie ahead. Consequently, the magnitude and type of risks will vary depending on the type and form of the business. In general, these include: natural hazards, contracts and legal relationships; financial operations, misconduct by employees, acts or omissions of third parties, federal, provincial and municipal laws or regulations, economic conditions, dependence on outside resources, property loss, use of technology; and workforce (McGivern et al 2012 pp 289-296)
The knowledge of risk management is vital to entrepreneurs, since it helps them manage various risks through approaches such as obtaining insurance. However, entrepreneurs need to understand that there are a number of risks that cannot be by passed or reduced by insurance policies. (Wilson & Stokes, 2010 p. 254)Therefore, it is important for business persons to ensure that their own individual assets are in the event of a threat materializing. For example, the economic circumstances and the financial atmosphere of the consumers that an entrepreneur operates in, directly influences various functions in an organization. Nevertheless a number of businesses end up failing within their early years of their creation due to poor strategies and negligence of risk management. It is vital for business owners to examine and be acquainted with these facts and strive to protect their individual in the event of the insolvency a business enterprise (Frederic 1994 p.764).
The relationship between risk management and entrepreneurship is very significant since it determines the success or failure of a business. The process and effectiveness of risk management determines the success of an entrepreneur. The risk management technique is one of the most important tool that determines the decisions and approaches of an entrepreneur to make prior to undertaking financial operations. The approach to risk management helps an entrepreneur to have the opportunity to make decisions on whether would like to operate as a sole proprietor, a partnership or a corporation (Fauchart & Gruber, 2011 p.941).. Therefore, all entrepreneurs need be relentlessly concentrated and fixated on controlling costs and managing this risk. An entrepreneur needs to know that the essentials of business success are such things as accepting uncertainty, having the ability to manage risk and perception of the situation, and being highly motivated
Risk management provides an important framework for entrepreneurs to enhance efficiency of business. Risks management relates with entrepreneurship in that its helps entrepreneurs to establish a risk management plan in order to minimize the occurrence and impact of risks. Creating a risk management plan proposes applicable and efficient security measure that enable entrepreneurs manage potential business risks (Cortada ,2003 p 512).For instance when an entrepreneur identifies that their business in prone to dangers of computer viruses, the he or she might attempt to mitigate the risk by acquiring and establishing an antivirus soft ware. Appropriate risk management plans need to contain a schedule to monitor the establishment of a plan of action together with the responsible person that are to carry out the implementation process.
However, the association between risk management and entrepreneurship is not at all times beneficial. There are number of occasion where this relation may have a negative impact. For instance, excessive prioritization of the risk management process may inhibit an entrepreneur from accomplishing or starting on a given task. This is mostly experience in circumstance where an entrepreneur suspends a given task until the risk management procedure is completed (Gedajlovic et al 2009 p 530). When risks are inappropriately assessed and prioritized, quite a lot of time might be consumed when trying to deal with the impact of the risks that are not likely to occur. These intern leads to improper using of the minimal resources thereby undermining the profitability of a business. Even though uncertain events take place, in some cases its important to retain the risk and deal with its future impact incase the loss occurs. Many young companies fail due to unplanned hazardous events for and also due to the factor that young entrepreneur to do not effectively execute risk management measures. However due to upside preparedness only few young entrepreneurs get lucky and achieve their goal (Ucbasaran et al 2001 p. 69)
Conclusion
It is important for entrepreneur to know that their goals cannot be attained with appropriate risk management. When project planning is framed, there is a great probability to encounter risks. However, with establishing early plans of risk management entrepreneurs are able to manage their business risk effectively. So to minimize the frequency of risk occurrence, an entrepreneur needs establish from the beginning the manner in which they would carry out their business. By implementing early plans of risk management entrepreneurs are able to control the impact of risk. These include activities such as purchasing insurance policies for the identified. Risk and also it is important that the entrepreneurs evade any probable risks without altering the primary goal of the business. Qualitative risk assessment for entrepreneurs is prejudiced and lacks regularity. The most important rationalization for a prescribed risk assessment process is legal and bureaucratic.
Reference
Cortada James W.(2003)The Digital Hand: How Computers Changed the Work of American Manufacturing, Transportation, and Retail Industries. USA: Oxford University Press. p. 512. ISBN 0-19-516588-8.
Dutta, B.(2012)Enterpreneurship Management. Excell Books. New Delhi.
Fauchart, E and Gruber, M. (2011). Darwinians, communitarians, and missionaries: The role of founder identify in entrepreneurship, Academy of Management Journal, 54 (5): 935-957.
Fischer, Michael Daniel; Ferlie, Ewan (2013). Resisting hybridization between modes of clinical risk management: Contradiction, contest, and the production of intractable conflict”. Accounting, Organizations and Society 38 (1): 30–49
Frederic delmar (1994) the risk management of the entrepreneur: an economic-psychological perspective. J. Enterprising culture 2(2), 735-80
Gedajlovic, Neubaum and Shulman (2009). “A typology of social entrepreneurs: Motives, search processes and ethical challenges”, Journal of Business Venturing, 24 (5): 519-532
Kowert, P.A., & Hermann, M.G. (1997). “Who takes risks? Daring and caution in foreign policy making”. Journal od Conflict Resolution 411 (5): 611–37
McGivern, Gerry; Fischer, Michael D. (1 February 2012). “Reactivity and reactions to regulatory transparency in medicine, psychotherapy and counselling”. Social Science & Medicine 74 (3): 289–296.
Ramoglou, S. (2013). “Who is a ‘non-entrepreneur’? Taking the ‘others’ of entrepreneurship seriously”, International Small Business Journal, 31(4): 432-453.
Ucbasaran, D., Westhead, P., and Wright, M., (2001). “The Focus of Entrepreneurial Research: Contextual and Process Issues”, Entrepreneurship Theory and Practice, 25(4): 57-80.
Wilson, N & Stokes, D. R. (2010). Small Business and Enterpreneurship. Cengage learning. New York.
Zbilgin, M. F.(2009) Career Choice in Management and Enterpreneurship: A research Companion. Edward Elgar Publishing. ChelternHam
