Reasons Risk Management and Due Diligence is Important in Commerce
The economic uncertainty that has dominated the business environment for the past few years has affected in some way how companies are being run today. Companies that have been managed quite smoothly on forecasts and projections are now realizing that they can’t continue like this,there has lately been a shift towards the issue of risk management. Risk is majorly what causes uncertainty in all organizations. This is why many companies are working hard to try and identify risks and manage them before they start having effects on the business.
Businesses that have the ability to manage risks well feel more confident as they make critical decisions in relation to how they run their operations.
Deep knowledge of the risks that a business is likely to face helps it to be ready with different options on how best to deal with any potential business related challenges.
Risks arise from internal or external sources.
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External risks are those risks that an organization’s management has no direct control over. Some examples of external risks are interest rates,political issues and exchange rates among others.
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Internal risks include non-compliance to policies and procedures or breeches in information among others.
Without a consideration of risk management,a company cannot define its objectives. An organization that fails to give consideration to risks when crafting its objectives will most likely lose direction if and when any risk hits.
Most organizations today have an autonomous risk management department. The primary role of the risk management department is to make sure the organization is well guarded against risks, to spearhead the implementation of all strategies related to risk management and to cause the rest of the team to fully support all risk management initiatives.
The risk department also has the duty of carefully assessing each risk and to make a judgment on which risks they believe are the most critical.
Risks that are deemed to be critical are those ones that could have a seriously adverse effect on the business. Essentially,the goal of the risk management department is to ensure that the organization takes only those risks that would help it achieve its objectives while striving to control all other risks.
Another issue that is gaining prominence in the corporate world is due diligence,which actually goes hand in hand with risk management. Companies typically have to deal with many other parties and this poses some risks which can be minimized through a proper execution of due diligence on the party they are transacting with.
Due diligence has become quite critical as a result of a significant rise in fraud and scams in relation to the world of entrepreneurship and background checks and verification of information has become the standard before contracts can be signed;this helps manage risks.
Risk management and due diligence has become the rallying call of the business managers today.