What is one key principle of effective risk management?

Evaluating and addressing risk exposures is a fundamental principle of effective risk management because it involves identifying potential threats that could impact an organization's objectives and systematically analyzing their likelihood and potential impact. By doing so, organizations can prioritize risks based on their severity and implement strategies to mitigate, transfer, accept, or eliminate these risks. This proactive approach enables organizations to safeguard their assets, ensure compliance with regulations, and maintain operational effectiveness.

In contrast, merely ignoring potential risks can lead to unforeseen events that could have been managed or mitigated. Documenting all incidents, while important for learning and process improvement, does not directly contribute to the proactive nature of managing risks before they occur. Focusing solely on financial factors neglects other critical dimensions of risk, such as operational, reputational, and strategic risks, which are equally important in a comprehensive risk management framework.