Organizations encounter risk every day as they pursue their objectives. In conducting appropriate oversight, management must deal with a fundamental question: How much risk should be pursued or retained in pursuing these objectives? Organizations must embrace risk in pursuing their goals. The key is to understand how much risk they are willing to accept.
Confident and appropriate decision-making is one of the key benefits of a well-designed and implemented risk management program. An effective risk evaluation activity, supported with a meaningful and practical Risk Appetite Statement (RAS), will provide clear direction on whether or not to accept a risk and then to implement further, prioritised risk mitigation if deemed necessary.
Risk appetite refers to the type and amount of risk that an organisation is prepared to accept or avoid in pursuit of its business objectives.
Despite risk evaluation contributing significantly to decision-making, it is that part of the overall risk management process that, is often (and frustratingly) the least well understood and applied. We have viewed many vague risk appetite statements that provide little or no guidance to management teams and as a result, decisions on which risks are not acceptable, and where to prioritise risk mitigation and allocate resources, is often compromised.
But it doesn’t have to be difficult. Understanding the nature of your organisation, its objectives, level of risk maturity, and applying some basic principals and techniques will help a lot!
Riskcom has assisted numerous organisations in enhancing their risk evaluation activity, including the preparation of meaningful and practical Risk Appetite Statements.
Read on to discover some key concepts when it comes to creating an effective and considered risk appetite statement.