The entrepreneur must study his own business to see what factors will be affected to risk. Risk can be classified into general and specific risks and each of them is different in details. Some risks can be mitigated while others cannot. For studying about risk especially in school, apart from studying internal factors that may affected to risk, one will also have to consider risks that might occur from factors such as human resource management, finance, asset management, durable good and equipment, innovation, and technology.

For understanding in the system and model that can be used to manage risk. A study in risk cycle will let executives see the overall picture of risk and allow them to set standards for internal control system to search for, identify, analyze, and prioritize the risk and its cycle. Some Examples of risk management include transferring the risk or taking an internal control.

Factors that involve in analyzing potential and managing of performance risk include:

Product means tangible products such as clothes and shoes, or intangible products such as gas which can be sold and could satisfy consumer.

Product Category products can be classified according to purchasing and consumption characteristics into 2 categories which are:

1) Consumer Goods refers to product or service that is directly used or consumed by the consumer or family. It can be further classified into 3 categories which include:

(1) Convenient Product is the product that can be conveniently bought. Most of them are bought regularly, used less time to buy, cheap, and customers usually select the familiar brand. The examples of this category are toothpaste, shampoo, soap, and detergent.

(2) Shopping Goods is the product that the customer usually compares its quality, price, and appearance before making a purchasing decision such as clothes, shoes, and accessory.

(3) Extra Product is an expensive product with special properties such as car and houses which the buyer will have to select carefully and compare the product price with its quality.

2) Industrial Goods means a product that is purchased for the reproduction or used to operate business such as raw materials, tools, equipment, machines, and construction materials.

Expense means the cost that is deducted from the income in a specific operational timeframe. It can be classified into 3 categories:

1) Cost of goods means the cost of goods’ selling price or service provided. The cost of goods sold in the trading business includes the buying and other necessary prices to make the product ready for sell, while the cost of selling price in production involves the production cost itself which consists of the cost of raw material, labor, and overhead cost.

2) Operating cost means the cost which occur from selling product or providing service and the cost in running the business.

3) Other expenses are any expenses apart from the cost of goods’ selling price and operating expenses such as interests from loan and income.

The expenses in trading business consists of the cost of goods’ selling price, operating expense, and other expenses, while those in servicing business include only operating and other expenses.

Profit is the return from selling product or service. It may come from the business operation or any other activities that are related to the business.

Competitor business competitor is like a stimulus that will strengthen the business and its staffs to effectively operate. It also initiates enthusiasm and creativity and motivates the business to continuously develop its quality in order to compete with competitors in the market.

Competitor refers to individual, group of individual, or institution that operates the same or similar business or provides the substitute products. They have to compete with each other in terms of sales, product quantity and quality to gain as much market share as possible. Business competition is important to both individual and economic system in the senses that:

1) It creates product options. The more business competition, the more production / service options which will benefit and create some alternatives for people.

2) It improves product quality. The competition to seize as much market share as possible and as long as possible will indirectly improve the quality in the market since the quality is the motivation of the customer to purchase the products.

3) To make the product price cheaper. Whenever there are a lot of products supplied in the market, the price based or giving discount strategy will be used to motivate customers.

4) To make new products. The business that faces a high level of competition often initiates the method to produce a higher quality product, and keeps inventing or improving its product to create customer demand.

Things to Know About Competitor

The more competitor information possessed by the salesperson, the more advantage in selling the product is witnessed. Selling the product without considering the market condition and competitor will create problems in selling it, so it is necessary for the salesperson to know the competitor information in the following aspects.

(1) Market size: it is essential for the salesperson to know the competitor’s market share and the trend of the future sales for customers in terms of gender, age, occupation, and status.

(2) Method in selling the product: although the product is classified in the same category, it may have a different method of selling.

(3) Promotional campaign: the promotional campaigns at present are varied and become more and more competitive. These may include advertising via medias, providing discounts, and sweepstakes.

(4) Product characteristic: the salesperson will need to know what product is now competing in the market in terms of brand, its strength and weakness, and what the advantage of competitor’s product is.

(5) Competitor’s customer: the salesperson will need to know the competitor’s customer in terms of what kind of people / business they are, their purchasing powers, their needs, their financial status, and their desirable product characteristics.

(6) Competitor’s size of business: the salesperson will need to know the capability of the competitor; for examples, whether the competitor is a family business or a large business with high production capability and whether the competitor is a multi-national corporation or not, in order to know other information such as the size of competitors’ fund.

(7) Sales strategy of competitor: salesperson is crucial for every business since the position will make the business expands further, so the entrepreneur must encourage his salespersons to acquire more knowledge and skills to compete with other competitors.

Market Share refers to a comparison of the product sold by the business and the product sold by its competitors. In analyzing the market share, one will have to find the current market share of his business in comparison with his competitors and analyze what the route cause is and how the market share can be increased.

Business Capacity means knowledge, skills, and necessary attributes for individual to successfully manage the business and achieve the target performance or better.

Example of Capacity

1. Individual Capacity includes communication, self-confidence, creativity, and innovativeness.

2. Managerial Capacity includes communication, planning and administration, team work, strategic capability, international capability, and self management.

Internal Aspect means the study of strength, weakness, strategy and method of the competitor to find the retaliation policy. Internal environment consists of:

• Strength involves an analysis of internal aspects of the organization. An aspect that has some potential such as a good quality product is considered strength.

• Weakness involves an analysis of internal aspects of the organization. An aspect that has no potential and harms the organization such as the unskilled labor in production is considered weakness.

External Aspect means a study of opportunity and threat. One must possess the knowledge of the business structure, customer, competitor, and economic news in both domestic and international and use them to analyze the external aspect based on fact.

• Opportunity is an analysis of the external aspect of organization. What factor positively affects and supports the organization to achieve its target will be considered an opportunity; for example, a lower oil price is considered an opportunity to gain more profit.

• Threat is an external factor that harms the organization. Some examples of threat include a situation of economic downturn when the consumer’s purchasing power is lowered and results in a reduction in sales volume and a higher oil price is considered a threat for logistic businesses since it will cut down the profit margin.

Risk Cycle

The risk cycle involves a decision of every management to face the risk. To mitigate risk, it is necessary for the executive to know and understand the risk cycle in order to use it to manage risk according to the business objective.

An establishment of the risk cycle will allow the executive to see an overview of all risks and use them to set internal control standards for both the executive and internal audit, as well as setting audit plans.

1. Understand an organization objective: Understanding in the organization objectives is required, in order to let all employees understand its direction and goal, and achieve them.

2. Explore risk: the executive should assign the person in charge, which may be an audit or internal audit departments as a risk management department to explore risks, or assign an adhoc committee, which consists of a group expertise from various departments, for each risk exploration.

3. Find and identify risk: this relates to the search of risk issues from various sources.

4. Risk analysis: an analysis will depend on the risk characteristics and the tools that will be used to analyze. In this case, a widely accepted method is a comparative analysis.

5. Evaluate and prioritize risk: although the risks comprise of tangible and intangible risks, the risk evaluation process must be clear and interpret the result into tangible and measurable result; it must be measured in terms of quantity and time spent. The risk prioritization could be classified as high, moderate, and low risks. The conclusion will then be used in the risk management process.

6. Manage risk: risk management is the key for business success since the risk itself is a key obstacle towards an achievement of the organization according to its objectives. It is, therefore, the duty of management to manage such risk for the benefit of the organization.

7. Examine risk: the process involves controlling, directing, and following up the risk management mechanism to see whether the program is well executed or not. This can be done by the tasks such as risk checking up, internal audit, evaluation of internal audit system, creating an improvement standard, and setting the risk alarm.

The executive will have to prevent such risks, or to control them as much as possible.