Step 04: Risk Management — The process of identifying, assessing, and mitigating potential risks to minimize their impact on an organization’s objectives.
Risk Mitigation: The Four Types
Liquidity: The ease with which an asset or security can be converted into cash without affecting its market price, often used to measure a company’s ability to meet short-term financial obligations.
Operational Risk: The risk of financial losses resulting from internal processes, systems, people, or external events, including human error, technology failures, and natural disasters.
Credit Risk: The risk that a borrower may default on their debt or fail to meet their financial obligations, leading to potential financial losses for the lender.
Market Risk: The potential for financial losses due to fluctuations in market prices of assets, such as stocks or commodities, caused by various factors like economic events or changes in market sentiment.
Other Risks: A broad category that encompasses various risks beyond the common categories mentioned above, including legal risks, compliance risks, and strategic risks, among others.