Which of the following best explains the purpose of risk management?

The primary purpose of risk management is to identify and minimize potential risks. In the context of a business, this involves recognizing various risks that could impact the organization, such as financial, operational, legal, and reputational risks. By understanding these risks, a business can implement strategies to mitigate them, thereby reducing negative impacts on operations, resources, and overall business success.

Effective risk management helps organizations make informed decisions that align with their objectives while safeguarding their assets and ensuring continuity. This proactive approach allows businesses to protect themselves against unforeseeable events and uncertainties, rather than simply reacting to problems after they occur. It is a critical component of strategic planning, as it ensures that potential pitfalls are considered and addressed, enhancing the organization's ability to achieve its goals.