Risk, Uncertainty and Business Enterprise (Cambridge (CIE) A Level Business): Revision Note

The distinction between risk and uncertainty

Uncertainty

• Business uncertainty is when a business cannot predict what is going to happen or directly influence it

  • Uncertainty cannot be prepared for because it is unknown and cannot be measured

  • Factors that typically cause uncertainty include:

    • Environmental factors such as the Japanese Tsunami in March 2011

    • Economic changes such as Covid lockdowns, Brexit or collapses in the banking system

    • The entry of new competitors

    • Changes in local and national legislation (laws)

    • Changes in the political party governing the country

Risk

• Risk can be measured, allowing business owners to make informed decisions before taking action

  • Research, market insight and creating a business plan can help to reduce risk

  • E.g. Awareness of increased demand for music on vinyl, extensive market research and a strong business plan convinced entrepreneurs Joel Magill and Will Greenham to set up Smugglers Records in the small seaside town of Deal

Risk versus uncertainty 

• Entrepreneurs have varying levels of risk they are willing to accept

  • Risk-averse entrepreneurs may prefer to start small and achieve slow growth

  • Some entrepreneurs may prefer to share risks with others in a partnership or protect their personal assets by forming a private limited company

• Successful entrepreneurs can manage risk and quickly respond to uncertainty in the business environment

An example of entrepreneurial response to uncertainty

Business enterprise and the development of a country

• Government policy often includes support to entrepreneurs to encourage them to set up new businesses or take steps to grow their business

  • The Philippine government recognises the contribution that small businesses make to its economy and offers a range of incentives to entrepreneurs, including

    • Training programmes to equip business owners with the skills they need to operate an enterprise

    • A streamlined application process for low cost government-supported loans

    • Mentor initiatives where entrepreneurs are partnered with an expert who can provide advice on training and business development services

    • The Go Loka! project, which provides product development training, access to a marketing platform and promotional events

    • Exemptions from income tax and minimum wage law for a limited period 

How small businesses contribute to a country's economic development