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Worth of Due Diligence in Risk Management it is but a natural thing to do by business investors or lenders to conduct due diligence before staking in a potential investment or acquisition or before lending out money. The process of conducting an investigation of a business entity or of an individual before signing an agreement and carried out with prudence is known as due diligence. Although the nature may be voluntary, the process of due diligence has a legal face. The establishment of due diligence is based on the theory that careful and prudent investigation carried about on a business entity or on an individual can help a lot in the decision-making of investors and lenders through the quality of information that was obtained from the investigation process. Technical and financial components comprise the process of due diligence, such that the investigation covers studying all contracts to check on provisions of risk management and allocation or to technically study the design of a proposed project. Due diligence can also be applied in determining the type of risks facing a business or project venture at a particular point in time. Due diligence is useful in both ways – for the business entity or individual who is applying for a loan or for the financial investor or lender who needs a risk profile to allocate potential risks in the contract before agreeing to the loan contract. The following points are included in a profile risk – potential causes of risk, potential consequences resulting from the risk, adequacy of the control environment operating around the risk, and adequacy of the quality and quantity of information available to monitor the control environment operating around the risk. There are various forms of risk: technological, sovereign, political, economic, etc, such that it is imperative that the risk profiling be conducted meticulously so that the awareness of all risks may be weighed down before any investment decision takes place.
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The identification, assessment, and prioritization of risks and followed by a collaborated and financial application of resources to limit, monitor and control the probability or impact of unfortunate events is referred to as risk management. To make an almost safe assurance that the element of uncertainty does not sidetrack a business endeavor is the main goal of risk management. ideally, in applying risk management, it uses the prioritization process, such that risks that give the greatest loss and risks with a greater probability of occurring are prioritized first followed by risks with lower loss and probability and handled in descending order. Risk management also includes allocating resources which is the prime basis in establishing opportunity cost, which is an alternative cost considered in undertaking a business investment.Study: My Understanding of Tips