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Why is Due Diligence and Risk Management Becoming So Important? The economic volatility that has been witnessed in the recent past has impacted the way modern companies are managed. A lot of the companies that have been run with the assistance of forecasting and projections are now finding that they can no longer continue making serious corporate decisions on the basis of these and are now shifting a lot of their attention to risk management. Risk is majorly what causes uncertainty in all organizations. That is why modern companies are now making concerted efforts to identify and manage risks before they begin to have impact on their business. The ability to successfully manage risk gives an organization confidence during making important business decisions. A clear understanding of all possible risks regarding an organization will help it devise various solutions to all potential problems that can arise in the course of doing business. Risks can arise from both external and external sources.
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External risks are simply risks in relation to which an organization has no express control. Examples of external risks are interest rates,exchange rates and political issues.
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Internal risks include information breaches and non-compliance to policies and procedures. Without a consideration of risk management,a company cannot define its objectives. If an organization does not pay attention to the issue of risks when deciding on its objectives,it will easily be derailed when any of the risks comes calling. It is common nowadays to find companies which operate full risk management departments. 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 considered critical are normally those which can impact the organization in the most adverse way. 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. Businesses normally have to transact with parties with whom they don’t have a business history and before they commit themselves,they have to do detailed due diligence to protect themselves from the risks inherent in doing such transactions. A steep rise in the world of business has caused businesses to focus on doing due diligence and background checks before they can commit to business agreements in order to lower risks. Risk management and due diligence is important for every organization today.