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Worth of Due Diligence in Risk Management Business investors or financial institutions normally carry out due diligence as an integral part of risk assessment of an upcoming, potential investment, acquisition or financial loaning. Before a business contract is signed, a process of investigation of a business or of an individual with a certain standard of care is called due diligence. Although the nature may be voluntary, the process of due diligence has a legal face. The theory behind due diligence is on the premise that the type of investigation contributes the quality of information needed by the decision makers, who are the businessmen, financial lenders, in order to discuss the risks, costs, and benefits before agreeing to sign a contract. 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 the evaluation of the types of risks facing a business or project at a particular point in time. Due to its extensive application, due diligence can be applied in both parties concerned – the receiving party which comprises the business entity or individual who is applying for a loan and the investment party who comprises the investor or lender. The components of risk profile includes the following: 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 extends its application into the allocation of resources, a basis of setting up an opportunity cost or known as alternative cost, which is a part of a business undertaking.Finding Ways To Keep Up With Businesses