Systematic and Unsystematic Risks to Businesses
Systematic risk is the risk caused by economic factors that are beyond the control of business owners. Systematic risks are generally unforeseeable and include increases in interest rates, the level of employment in the industry, new competition, adverse state and/or federal legislation, major weather events, earthquakes, recessions, pandemics, and wars. All of these risks can impact businesses to some degree.
Unsystematic risks are those risks that are within the control of each company. These include the quality of management and employee relations.
The total risk to a business includes both systematic and unsystematic risks. Some of these risks can be reduced by diversification, excellent management skills, and by obtaining comprehensive insurance coverage.