Anita Brown: Senior Consultant
Simply put, a risk appetite statement sets out the amount of risk an organisation is willing to accept in pursuit of its strategic objectives.
You may believe your organisation is travelling along just fine without one, but without understanding the organisation’s appetite and tolerance for risk, your organisation may be creating a risk averse culture and missing out on some profitable opportunities. At the other extreme, your organisation may be taking on too much risk and it is just a matter of time before its luck runs out.
A clearly defined risk appetite statement which is aligned with the organisation’s strategy and a fundamental component of its risk management framework will provide your organisation with a clear picture of its risk management objectives and those risk events the organisation needs to reduce or increase its exposure to, as well as risk categories that need more or less attention.
A risk appetite statement is more than a good idea. Embedding a risk appetite statement will help foster a risk aware culture and guide consistent decision making which is within the organisation’s risk appetite enabling the organisation to capitalise on those opportunities.
So what does this mean in practice? The board should consider and agree on, for example, the amount of capital the organisation is willing to risk in pursuit of new commercial opportunities, the extent to which the organisation is willing to compromise its brand in the pursuit of innovative activities that might fail, what debt/equity ratio limits it will tolerate, etc.
The more guidance a board can provide regarding the organisation’s risk appetite and tolerance for risk, the more quickly and effectively the organisation can make decisions on opportunities and progress those which will further its strategic objectives and stop wasting time on those that don’t.
Anita has been responsible for the risk management function during her executive career and developed a number of risk management frameworks which were tailored to the organisation’s level of risk maturity. She has used her experience and skills to ensure boards contribute to the development of value-added risk management frameworks and processes, including risk appetite statements, which appropriately manage risk and guide the organisation in pursuit of its strategic objectives..