AQA · GCSE · Business

    Course version: 8132 · Version from Sept 2017

    Understand the risks businesses face and the reasons why all businesses…

    Full specification wording

    Competitive environment: understand the risks businesses face and the reasons why all businesses face uncertainty

    All businesses face risk and uncertainty.

    Checked against the AQA 8132 specification (opens in a new tab) on .

    • Point 5 of 6
    • 3 key terms

    Study notes

    From the checked teaching notes for this specification point.

    The idea

    All businesses face risk and uncertainty. Risk is the possibility of loss or damage from a known event, such as a competitor lowering prices, a supplier failing to deliver, or a product failing to sell. Uncertainty is when the outcome is unknown or unpredictable, such as changes in consumer tastes, economic conditions, new technology or government policy. These factors mean that business decisions are made without complete information, so plans may not achieve expected results. For example, a business may invest in new machinery based on forecast demand, but if demand falls, the investment may not pay off. Understanding risk and uncertainty helps businesses to plan, diversify, insure and remain flexible.

    What earns the marks

    • Defines risk as the possibility of loss or damage from a known event, and uncertainty as unpredictable outcomes.
    • Explains that all businesses face uncertainty because future events such as changes in consumer tastes, economic conditions, technology or government policy cannot be perfectly predicted.
    • Describes specific risks businesses face, such as competition, supply chain disruption, cash flow problems or product failure.
    • Explains how uncertainty affects business decision-making, for example by making forecasting and planning less reliable.
    • Applies understanding to a given business context, considering how risk and uncertainty might affect its operations or strategy.

    Common mistakes and how to put them right

    • Treating risk and uncertainty as the same thing.

      Put it right: Risk involves known possible outcomes that can often be quantified, while uncertainty involves unknown or unpredictable outcomes.

    • Assuming uncertainty only affects new or small businesses.

      Put it right: All businesses, regardless of size or age, face uncertainty.

    • Ignoring the link between uncertainty and decision-making.

      Put it right: Uncertainty means decisions are based on forecasts and assumptions that may prove wrong.

    Exam tips

    • When asked to explain risk or uncertainty, ensure you clearly distinguish between the two concepts using precise definitions.
    • Give examples of risks and uncertainties relevant to the business in the question, such as a change in consumer tastes or a new competitor.

    Try the lesson

    The start of the Competitive environment: understand the risks businesses face and the reasons why all businesses face uncertainty lesson, made from checked teaching notes for this specification point.

    Have a go first

    Which of the following is a common financial risk that a new business might face?

    Listen

    All businesses face risk and uncertainty. Risk is the possibility of loss or damage from a known event, such as a competitor lowering prices, a supplier failing to deliver, or a product failing to sell. Uncertainty is when the outcome is unknown or unpredictable, such as changes in consumer tastes, economic conditions, new technology or government policy. These factors mean that business decisions are made without complete information, so plans may not achieve expected results. For example, a business may invest in new machinery based on forecast demand, but if demand falls, the investment may not pay off. Understanding risk and uncertainty helps businesses to plan, diversify, insure and remain flexible. A strong answer earns marks for these points. Defines risk as the possibility of loss or damage from a known event, and uncertainty as unpredictable outcomes. Explains that all businesses face uncertainty because future events such as changes in consumer tastes, economic conditions, technology or government policy cannot be perfectly predicted. Describes specific risks businesses face, such as competition, supply chain disruption, cash flow problems or product failure. Explains how uncertainty affects business decision-making, for example by making forecasting and planning less reliable. A common slip: Treating risk and uncertainty as the same thing. Instead, risk involves known possible outcomes that can often be quantified, while uncertainty involves unknown or unpredictable outcomes. Exam tip: When asked to explain risk or uncertainty, ensure you clearly distinguish between the two concepts using precise definitions.

    See it

    A top-down flowchart. The top node reads 'All businesses face risk and uncertainty' and branches into three parts. The first branch is 'Risk: possibility of loss or damage from a known event', which leads to three examples: 'Competitor lowering prices', 'Supplier failing to deliver' and 'Product failing to sell'. The second branch is 'Uncertainty: outcome unknown or unpredictable', which leads to four examples: 'Changes in consumer tastes', 'Economic conditions', 'New technology' and 'Government policy'. The third branch is 'Decisions made without complete information', which leads to 'Plans may not achieve expected results'.
    It shows that all businesses face risk and uncertainty, the known events that create risk, the unpredictable factors that create uncertainty, and how this leads to decisions made without complete information so plans may not achieve expected results.

    Key words

    Say what each word means before you turn the card.

    Risk

    Try answering aloud or in your head before turning the card.

    Uncertainty

    Try answering aloud or in your head before turning the card.

    Uncertainty and decision-making

    Try answering aloud or in your head before turning the card.

    See every definition
    Risk
    The possibility of loss or damage from a known event, such as a competitor lowering prices, a supplier failing to deliver, or a product failing to sell.
    Uncertainty
    When the outcome is unknown or unpredictable, such as changes in consumer tastes, economic conditions, new technology or government policy.
    Uncertainty and decision-making
    These factors mean that business decisions are made without complete information, so plans may not achieve expected results.

    Label the diagram

    Some boxes have lost their names. Pick the right name for each number.

    The diagram again, with 3 boxes numbered instead of named. A top-down flowchart. The top node reads 'All businesses face risk and uncertainty' and branches into three parts. The first branch is 'Risk: possibility of loss or damage from a known event', which leads to three examples: 'Competitor lowering prices', 'Supplier failing to deliver' and 'Product failing to sell'. The second branch is 'Uncertainty: outcome unknown or unpredictable', which leads to four examples: 'Changes in consumer tastes', 'Economic conditions', 'New technology' and 'Government policy'. The third branch is 'Decisions made without complete information', which leads to 'Plans may not achieve expected results'.

    • 1Box 1

    • 2Box 2

    • 3Box 3

    0 of 3 labelled

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