There are at least five types of unsystematic risk, they are business, financial, operational, strategic, legal and regulatory risk. In brief, business risks involve internal and external issues occurring in business like the loss of competitive advantage. Financial risk refers to the capital structure of a company. Operational risk happens when there are unforeseen or negligent events. Strategic risk happens when a business is stuck selling goods or services. Strategic risk is the risk where a business has a problem in selling goods and solid planning. Then, legal and regulatory risks are the risks where the change of laws might hurt business. Hereby the detail of unsystematic risk!
Operational efficiency relates to internal risks in business risk. The example is when the management failed to take out a patent for product protections. This becomes the reason why a business could have potential loss of competitive advantage. As business risk also involves external risk, authority’s ban on certain products is the epitome of external business risk. Financial risk happens when a company needs to have an optimal level of debt and equity. This is to go on growing and meeting the financial obligations. When capital structure is poor it could make earnings and cash flow inconsistent, thus the company has difficulty in trading.
Operations as well as the failure of systems and policy could lead to operational risks. It is like a day-to-day operation that could result from breakdowns in internal procedures tied to employees or systems. In strategic risk, a business might involve in a flawed partnership with another firm and competitor. This could damage the company’s growth prospects. So, the company must have a solid plan in order to avoid strategic risk. Lastly, the example of legal and regulatory risk can affect a business dramatically. It is like a drastic change in legal and regulation making a business stop operating.