Risk in an entrepreneurial activity

Entrepreneurial risk: the origins and essence. The classification of business risk. Economic characteristic of entrepreneurial risks an example of joint-stock company "Kazakhtelecom". The basic ways of the risks reduction. Methods for reducing the risks.
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THE MINISTRY OF EDUCATION AND SCIENCES OF THE RK

THE INTERNATIONAL ACADEMY OF BUSINESS

“ECONOMICS AND LOGISTICS” DEPARTMENT

THE TERM PAPER

ECONOMIC THEORY

“Risk in an entrepreneurial activity”

Completed by the 1st year student

of “Finance” specialization

F1101

Kopbayeva L.T.

Checked by

the senior lecturer

Baitubayeva A.K.

Almaty 2011

Content

Introduction

Chapter 1. Theoretical bases and conception of business risks

1.1 Entrepreneurial risk: the origins and essence

1.2 The concept of risk

1.3 The classification of business risk

1.4 Types of losses

Chapter 2. The analysis of enterprise activity

2.1 A brief economic characteristic of entrepreneurial risks an example of joint-stock company "Kazakhtelecom"

2.2 Risk assessment and its indicators

2.3 Possible types of risk in the “Kazakhtelecom” activity

Chapter3. The main directions and ways to reduce risk.

3.1 The basic ways of the risks reduction.

3.2 Methods for reducing the risks.

Conclusion

The list of literature

Appendixes

Introduction

The market presents the best, charitable entrepreneurship environment, entrepreneurship - this is the most characteristic quality and properties of market relations. Entrepreneurship is being developed in different forms in the Republic of Kazakhstan. The activities divided into industrial, commercial, financial. It also divided by the size of business - small, average and large, and by character of the property - private and joint. It can be separated by the organizational form to individual and collective (companies, societies). The original legally organized form of the entrepreneurial enterprises is production cooperatives.

The new impulse was given with Decrees of the President of the Republic of Kazakhstan to the development of entrepreneurship: «About additional measures on realization of the state guarantees of freedom of the entrepreneurial business» from June, 14th, 1996 No 3036; «About measures on strengthening the state support of activization the development, of small businesses» from March, 6th, 1997 No 3398 and «About protection of the rights of citizens and the legal persons on freedom of entrepreneurial business» from April, 27th, 1998 No 3928.

So business gains strength, covering all new areas of economy and social layers. Its successful development can occur at availability of such necessary conditions, as a private property, freedom of economic activities. Concerning economic freedom, above the businessman can tower only the law and its established restrictions. In conditions of the market state regulation is mainly turned into an establishment of norms of realization entrepreneurial business and to tax system. All rest is defined by the producer and the consumer, their wishes, and to some extent develops at random.

It is necessary to pay for economic freedom. In fact to freedom of one businessman accompanies at the same time freedom of other businessmen which are free to buy or not to buy its production, to offer for it own prices, to sell it in determined prices, to dictate the conditions of transaction. Thus it is normally, that first of all, person with whom have to enter in economic relations aspires to the own benefit, and benefit of one can become damage for others. Besides this, the businessman-competitor tries supplant his opponent from the market. Consequently, want that or do not want, but mastering business, we should interact with uncertainty and heightened risk. The task of the businessman consists not in looking for business with obviously expected result, but the business without risk.

According to V.I. Dal, business means to decide, to dare to make any new business, to start doing something significant. Business risk is the risk arising at any kinds of entrepreneurial business, connected with production the goods and services, its realization; commodity-money and financial operations; commerce, and also realization of scientific and technical projects.

The risk is inherent in any area of human activity that is connected with set of conditions and the factors affected on a positive outcome of decisions accepted by people. Experience in the development of all countries shows that stagnation in economic system caused by ignoring or underestimation of economic risk to in development of tactics and strategy of economic policy, acceptance of specific decisions inevitably holds the progress of a society, scientific and technical progress. Significant growth of the unprofitable enterprises allows making the conclusion that it isn't possible to manage business without taking into account a risk factor; it is difficult to have good results in real conditions. It is impossible to create the effective mechanism of functioning of the enterprise on the basis of the concept without risk managing. So, it is necessary to consider primary goals of the analysis of the risk: determining a risk level, i.e. area of its function on an estimated scale; an establishment of size of risk; comparison size of risk to a level of security of industrial system.

The topicality of this subject is difficult to overestimating. Business develops with huge paces not only in Kazakhstan, but also all over the world. So, the real businessman should not aspire to avoid risk and to know its reasonable limits, to be guided not only by common sense, but also by the economic analysis of a degree of risk.

Business constantly develops and solving one problem businessmen constantly faced with another. In these conditions there is an ambiguity and uncertainty in reception of an expected result, hence, the degree of enterprise risk increases also. This subject matter is interesting for this reason. Though, business cannot exist practically without risk in the activity, it doesn't take predominating, but takes honorable and very important place in a rate of the economic theory.

For writing this work are used textbooks, periodicals, also normative and legislative documents. Essences of enterprise risk, types of risk, which can arise at carrying out entrepreneurial business and ways whereby it is possible to overcome or decrease a degree of risks are considered. At the end of term paper are made conclusion.

Chapter 1. Theoretical bases and conception of business risks

1.1 Entrepreneurial risk: the origins and essence

Realization of business is related to risk in it any way, that acceptable to name it economic or entrepreneurial. Finding out origins and causes of such risk, it's possible to clarify methods of risk evaluation and ways of avoidance.

Entrepreneurial risk has an objective basis because of uncertain impact on an external environment in relation to the entrepreneurial firm. The external environment includes the objective economic, social, political and other conditions in the network of which the employer exercise direction and he had to adapt to these changes.

Business is always jointed with uncertainty of economic conditions, which is derived from the inconstancy of supply and demand for goods, money, factors of production, from various spheres of capital and a variety of capital investment spheres from limited knowledge about the areas of business and commerce and many other circumstances. Uncertainty of the situation have an impact on the absence of clarity in defining the objectives, criteria and indicators to assess (changes in public needs and consumer demand, the emergence of technical and technological developments, changing market conditions, unpredictable natural phenomena).

Occurrence of enterprise risk is the reverse side of economic freedom of businessmen, an original payment for it. To freedom of one businessman accompanies simultaneously freedom of other businessmen, hence, in process of development of market relations will amplify uncertainty and entrepreneurial risk. Thereby, it is rather difficult to eliminate uncertainty of the present and the future of enterprise activity, as uncertainty is an element of the objective validity; therefore the risk is inherent in business at any sphere of activity.

Many decisions have to take under complete uncertainty in business, when you need to choose areas of action from several possibilities the realization of which is difficult to predict. If risks are not taken into account in the economic terms, then they become on the one hand a source of losses, and on the other - profits. It is possible to choose the decisions containing less of risk, while there will be less profit.

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Graph 1. Dependence of profit on risk evaluation ABC of enterprises: Textbook/Under the editorship Raizberg B.G. - M.Economic- 1995.

As follows from graph 1 that zero risk provides the lowest income (0; P1), and at the highest risk R = R2 the profit has the highest value P= P3 (P3> P2> P1). It is impossible to eliminate uncertainty of the future of an entrepreneurial activity, as it...