What is meant by 'risk management'?

Risk management refers to the systematic approach of identifying, assessing, and prioritizing risks that an organization might face, followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. In a business context, effective risk management can help safeguard assets, ensure operational continuity, and promote informed decision-making. By proactively addressing potential risks, companies can reduce potential losses and enhance their overall resilience.

The correct answer emphasizes the proactive nature of risk management, aligning closely with key concepts in finance that involve the analysis of uncertainties that could adversely affect a firm’s stability and profitability. Understanding risk management is vital for businesses as it enables them to navigate uncertainties more effectively, ultimately contributing to more sustainable growth and success.