Which action is a valid approach to risk management?

• A. Educate your people.
• B. Increase reckless lending.
• C. Ignore risk altogether.
• D. Abolish all credit policy.

Answer: (A)

The main idea here is that educating the people who actually handle credit decisions is a foundational control in risk management. When staff are well trained, they understand the policies, know how to apply financial statement analysis, recognize early warning signs, and follow the established underwriting standards. This creates consistent, informed lending decisions, reduces misjudgments, and supports timely escalation to higher levels when risk exceeds tolerance. In short, a knowledgeable team translates risk policy into prudent actions on every loan.

Raising reckless lending would undermine risk controls and likely increase losses. Ignoring risk altogether eliminates the check-and-balance system that protects the portfolio. Abolishing all credit policy removes the framework that guides safe, consistent decision-making. All of those would weaken risk management, whereas educating the team strengthens it.