Understanding Due Diligence and Risk Management: For Beginners
Looking at the title you will immediately look it up on a good search engine to find out what do these two phrases mean? It is understandable that these due diligence and risk management coincides with each other.
This article is designed to let you know what to expect about due diligence and to know more about risk management and what is in it for you.
Due Diligence at this website actually refers to the process of reviewing all of the available information especially when buying a business. The goal is to make sure that all aspects including financial, legal and operational issues about the business are in order and that there are no unpleasant surprises should you decide to continue with the purchase. It is simply the process of verification used by the purchaser in order to know that all information that was presented is confirmed true. It maybe exhaustive to do this kind of investigation depending on the transaction; actually it can involve multiple teams of accountants and lawyers for bigger transactions. The smaller transactions include an accountant checks the financial aspect, lawyer handles the legal aspect, and the owner with the operational portion of the business. Why is due diligence important? Well, from the buyer side it is important that buyers feel comfortable that his or her expectations of proposed transactions are correct.
Risk Management from this homepage has a lot to do with probability and statistics. It is a complex process that is ironically easy. It is about asking and answering four basic questions. These questions are the top most things people wanted to ask whether they are in a dilemma, project process or organizational decision.
1.What are we trying to do? This question will lead you to the answer, risk process, objective setting, understanding the scope and context, and your goals.
2.What might affect you? This question will lead you to answer the things in the future that could hinder you from achieving your goals or help you in achieving your goals. It is all about risk identification and finding uncertainties.
3.Which of those that might affect you are most important? This question will lead you to the answers risk assessment, risk evaluation and risk analysis. These things that will affect you in two key dimensions, how likely it is to happen and if it did happen what effect could it have on your goals? Risk includes threats or opportunities.
4.What should you do about it? This is really important. From this you can deduct designs and responses. You can try bad risks to avoid them, minimize them or protect yourself. You can try good risks to maximize them, exploit them, or to make yourself able.
These two systems of principles are keys to each one's success.