Risk management involves understanding, analysing and addressing risk to make sure organisations achieve their objectives. So it must be proportionate to the complexity and type of organisation involved.
Risk management is also the process of identifying any potential threats that may occur during the investment process and doing anything possible to mitigate or eliminate those dangers.
Businesses typically assess their risk in day-to-day operations as well as periodically before making any investment decisions. Businesses will frequently refer back to a risk analysis in order to decide what type of securities that they want to purchase or what ventures they are willing to invest in. It is also used when companies consider future product line or factory expansions and they want to assess the total danger of that investment before pulling the trigger.
Inadequate risk management can result in severe consequences for companies, individuals, and the economy.