How Diversification, Different Asset, and Securities Influence Risk Management

Risk Reduction
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Risk Reduction
Diversification is a technique used to reduce risks in the supply chain. It is where the management selects specific suppliers for backups based on different capabilities, locations, and sizes (Mizgier et al., 2015). It can also be described as a process of reducing risks by investment allocation across industries and supplier categories. The aim is to return maximization and loss reduction. Diversification is achievable at different levels using specific asset classes, sectors, and securities. The central tenet of diversification is to avoid focusing on one direction, and it requires the management to consider other options as backups. Diversification is vital since it is utilized in managing specific procurement and thus positively benefits the organization. Diversification is used in risk reduction by spreading funds on different financial instruments and suppliers; therefore, it is easy to recover from possible losses (Schmitt et al., 2015). Due to backups, diversification makes it easy to manage the supply chain and initiate procurement.
The number of securities and different asset classes heavily influence risk management. Every mana...