Risk appetite
Risk appetite is the amount of risk that you are prepared to take in order to achieve your objectives. The financial world has been used to the concept of appetite for many years. As consumers, we will have participated in the assessment of our own appetites. For example, when investing, how often have you seen statements along the lines of, “choose your investment stance, cautious, moderate and adventurous”. In other words, do you want to invest your money in a potentially very lucrative investment but with a higher risk of failure (adventurous) or choose a much safer investment but with lower returns (cautious)?
This same concept is what is being asked of us in our own organisations, that is, to articulate what exposure are we prepared to accept in order to operate a successful business. How much risk is the right amount to take for the hoped for reward? The OGC’s Orange Book (2020) advises, ‘the Board should determine and continuously assess the nature and extent of the principal risks that the organisation is exposed to and is willing to take to achieve its objectives – its risk appetite – and ensure that planning and decision-making reflects this assessment.
Risk appetite in JCAD’s risk software, CORE
JCAD has always provided a couple of options to accommodate for the application of appetite but after consultation this has been enhanced within our latest release. Risk appetite is setup within the Administrative module, this includes appetite category (financial, reputational), level & profile (averse, moderate) along with statements & descriptions for each. Now when a risk is in the system a user can choose to link it to one of the appetite statements to which it applies.
Improving risk maturity
If your organisation is looking to increase its maturity in risk management, the ability to incorporate risk appetite is key. Upgrading to V5 of CORE will allow you to continue to use an existing tool but also take advantage of this and other new features.
Useful reading;
Institute of Risk Management –
https://www.theirm.org/media/6878/0926-irm-risk-appetite-12-10-17-v2.pdf
UK Government
AIRMIC –
https://www.airmic.com/sites/default/files/Airmic-EXPLAINED-guide-Risk-Appetite-Revised.pdf
Committee of Sponsoring Organization, COSO Standard – https://www.coso.org/Shared%20Documents/COSO-Guidance-Risk-Appetite-Critical-to-Success.pdf
