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Applying 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 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. The nature of due diligence investigation comprises technical and financial components, such that it takes in assessment of all contracts so that all necessary provisions of risk management and allocation are stipulated or evaluating the technical 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 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. A prioritization process is usually employed in an ideal risk management set up, such that that the risks with greatest loss or impact and greatest probability of occurring are handled first and the risks with lower probability of occurrence and lower loss are handled in descending order. Also included in the application of risk management is the process of allocating resources, which covers the setting up of what is called an opportunity cost or alternative cost, which is considered as a component in a business endeavor.What Research About Resources Can Teach You