Risk Taking Tips

Posted by Imam Larh on Tuesday, 6 March 2018

Everyone realizes that the world is full of uncertainty, except death, but it still contains uncertainty that will result in risk to the parties concerned. Especially in the business world, uncertainty and risk is something that can not be ignored just like that, even to be taken seriously. 

In relation to that fact, everyone (especially employers) should always try to overcome it, which means trying to minimize the uncertainty so that the losses incurred can be eliminated. Entrepreneurs love real risk-taking actions because they want to succeed. That is, they want to get great satisfaction in performing difficult but real tasks by applying their skills. 

Entrepreneurs avoid low-risk situations because there are no challenges, but they also do not like situations with high risk because entrepreneurs tend to always want to succeed. In short, entrepreneurs love challenges but can be achieved.

Understanding Risk
The results achieved from an activity are rarely predictable with perfect results, generally deviations, however small. Risk always occurs when decisions are made by using decision-on-risk or decision under uncertainty. 

To calculate the risk is generally used the expected value or variance. Risk needs to be analyzed, ie by using benchmarks to measure the magnitude of risk on an alternative, with the aim of obtaining an alternative with the risk that can still be borne. This analysis is very important to determine the capital budgeted for business activities. 

Various risks that may occur in a business activity, namely technical risks (losses), market risk, credit risk and risk beyond human capabilities. All risks can be prevented or minimized, except for natural risks whose probability is very small and negligible.

For an Entrepreneur, risk-taking is a challenge because it takes risks with regard to creativity and innovation and is an important part of turning ideas into reality. Similarly, risk taking for Entrepreneurs relates to trust in him. The greater the confidence in his ability, the greater the ability to spawn the results of the decisions taken. 

For people who are not entrepreneurs (eg civil servants) these activities are a risk, but for Entrepreneurs is a challenge and an opportunity to obtain results. Entrepreneurs are principled to step back one step, but later must go two steps. The Entrepreneur Magazine entitled "Executive" on a special sheet is written in capital letters with different colors as below:

"Do not stay in place (drawn with the tortoise upside down), but do the sure and steady even slow (depicted with the tortoise that goes creeping)".

Here are some opinions on the notion of risk:
  1. The risk is a variation of the results that can occur during a certain period (Arthur Williams and Richard, M. H)
  2. The risk is the uncertainty (uncertainty) that may bear the event of loss (loss)
  3. The risk is the uncertainty of an event
  4. The risk is the dissemination/deviation of actual results from expected results
  5. The risk is the probability of a different outcome than expected
  6. From the above notions, it can be concluded that risk is something always associated with the possibility of unexpected or undesirable adverse events happening.
While the characteristics of the risk itself are:
  1. The risk is an uncertainty over the occurrence of an event.
  2. The risk is the uncertainty that when it happens will cause losses.
The risks of self-employment
When starting a business, Entrepreneurs usually face huge business risks. In the United States, more than 3 million new businesses start every year, and two-thirds of the business is engaged in a business / small business. 

The average failure among new businesses is quite disturbing. Based on the research, 25 to 33 percent of small businesses fail during the first two years of operation. In addition to considering business risks, Entrepreneurs also face financial risks, as long as they invest most or all of their wealth in business. 

They risk the career by leaving a safe job for a risky job with an uncertain future. They also make family and social risks because the need to start and manage a new business leaves little time for family and friends.

There are three reasons why business failures, namely
  1. They get into the business too soon. They plunge into a new job that risks too much of a hurry, without deep planning. They do not analyze their strengths and weaknesses. Who am I ?, What do I want? What is my goal?
  2. They ran out of money. If you can not align your payroll or pay your bills, you will be out of business. Realistic cash needs planning is very important. Estimated cash needs are a top priority before starting this business.
  3. Planning failure is clearly a mistake. Detailed business plans encourage Entrepreneurs to think ahead, reflect, and decide how to move forward. This business plan must be in writing.
The reasons for the above failures should be considered before starting a business operation. The four main categories (planning mistakes, poor quality management, inadequate business methods, and lack of funds) can undermine hard work, brilliant creativity, risk-taking and future clarity.

Kinds of Risk
a. By its nature is distinguished into:
  1. Pure risk, the risks that occur would inevitably lead to losses and accidental occurrence. For example fire, natural disaster, theft, embezzlement, and so forth.
  2. Speculative risk, the risk that deliberately caused by the concerned in order to provide benefits for certain parties. Eg: debt accounts, futures trading, and so on.
  3. Fundamental risks that cause cannot be delegated to someone and who suffer a lot. Eg: flood, hurricane, and so on. Specific risks, risks that originate in independent events and are generally easy to identify causes, such as aground ships, crashed planes, and so on. Dynamic risks, risks arising from the development, and progress of society in the fields of economics, science, and technology, such as the risk of space flight.
Whether or not the risk is transferred to another party, as follows:
  1. The risk that can be transferred to another party, by ensuring an object that will be exposed to risk to the insurance company.
  2. Risks that are not transferred to other parties
According to source/cause of:
  1. Internal risk, risks arising from within the company itself, such as damage to assets due to employee error, work accident.
  2. External risks, risks from outside the company, such as theft, competition in business, price fluctuations, and so on. 
Risk mitigation efforts based on the nature and object of the risk are several ways to address or minimize risks, as follows:
  • Preventing and reducing the possibility of events that cause losses.
  • Retention, ie tolerate the occurrence of losses.
  • Controlling risks
  • Shifting risk to another party (insurance) For the outline there are various risks in trying and effort to avoid or minimize risk, that is
A. Technical risk
This risk occurs due to the lack of ability of managers or entrepreneurs in making decisions. Risks that often occur:
  1. High production costs (inefficient),
  2. Use of unbalanced resource resources (labor is too much),
  3. The theft occurred, due to poor supervision,
  4. There was a fire, due to negligence and lack of accuracy,
  5. Continually losses due to costs that continue to swell and the selling price have not changed,
  6. Poor placement of labor so that work productivity decreases, Planning, and design are wrong, making it difficult to use, as well as matters relating to the management of the company.
To overcome the above matters can be pursued efforts as follows:
1. Manager or Entrepreneur adds knowledge about:
  • Technical skills (technological skill), especially related to the production process produced. Strived using methods that can reduce the cost of production (efficient). For example, which was originally with traditional technology replaced with appropriate technology or modern technology.
  • Organizational skill (organizational skills), which is the exact mixing ability of the production factor in the business, including natural resources, human resources, and capital resources. Like making cakes, how to taste good, cheap, and likable buyers.
  • Leadership skills (managerial skills), namely the ability to achieve business goals and can be done well and harmonized by everyone in the organization. For this, every leader is required to create a concept of good work (conceptional skills).2. Redeem the losses to the insurance company, with consequences at any time must pay insurance premiums which are fixed expenses.
B. Market risk
This risk occurs because the resulting product is not sold or does not sell in the market. The product has become an ancient (obsolescence) that is gained steadily and losses occur. As a result, revenue (revenue) obtained continues to decline and there is a loss. 

This will be a business disaster that resulted in his efforts to reach the terminal alias out of business. Efforts that can be taken entrepreneurs are as follows:
  1. Innovate (product innovation), which is making a new design of products that are liked by prospective buyers.
  2. Conducting market research and obtaining market information on an ongoing basis.
C. Credit risk
Is the risk borne by creditors as the debtor does not pay the loan according to the time agreed? It often happens that producers put their products first and get paid later. Or the debtor borrowed money for the business but his business failed, resulting in bad credit.
Efforts to overcome this are as follows:

1. Give credit to someone who at least meets the following requirements:
  • Can be trusted (character), that is character and reputation that has been known.
  • Ability to pay (capacity). This can be seen from the ability/results obtained from his business.
  • The capability of own capital placed in the business (capital) so that it is a net personal asset.
  • The condition of the business so far (conditions) whether shows the trend up flat or down.
2. Do not give a loan too large while evaluating the debtor's credibility.
3. Paying attention to the management of the debtor's funds if the person owns the company. Noteworthy is the balance sheets, annual profit and loss statements and annual cash flows.

D. Natural risks
This risk occurs outside of human knowledge, such as earthquakes, floods, whirlwinds, and long droughts. Since the possibility of occurrence is very small this risk can be considered non-existent. However, if you are afraid to face the risk, there are insurance companies who dare to bear the risk.

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