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Applying Due Diligence in Risk Management In the investment business, as well as the lending business, due diligence is typically carried out as part of the financial risk assessment of an investment, acquisition, or before a lender loans out his/her money. Due diligence is none other than a process of investigation of a business or individual prior to signing a contract or it could also mean an act carried out with prudence or a standard of care. While it is voluntary, due diligence is considered a legal obligation. 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 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. These are salient points that are included in the coverage of a risk profile – 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. The significance of risk profiling is that it provides awareness of the different forms of risks (technological, sovereign, political, economic, etc) which can affect the investment during the course of arriving in a business decision.
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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. Risk management sees to it that the element of uncertainty does not avert the business undertaking. 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. 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.6 Facts About Tips Everyone Thinks Are True

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