From the course: Finance Foundations: Risk Management

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The importance of a risk management process

The importance of a risk management process

From the course: Finance Foundations: Risk Management

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The importance of a risk management process

- Albert Einstein said, "If I had an hour to solve a problem, "I'd spend 55 minutes thinking about the problem, "and five minutes thinking about solutions". This is the reason why the first question of risk management is what are your risks? You need to identify the problem before you can solve it. But you also need to decide on a strategy before jumping into solutions as well. There's only one order you can go in when implementing a risk management process, you can't leapfrog any steps and expect it to work. There is a process and it goes a little something like this. First, you have to start a risk management process by identifying and measuring risks. So you don't waste time trying to fix something that is miss-specified. If you have a fleet of cars, you might think crude oil is your problem, but your vehicles probably consume gasoline. That's the problem. Using financial contracts to manage your risks in a process…

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