The purpose of setting up an organization is to create value. In a bid to achieve this value creation objective, the entity must embrace risk. The key to success is to understand how much risk the organization is willing to accept.
Many questions thus arise as follows:
How can an organization decide how much risk it is willing to accept?
To what extent should the risks accepted mirror stakeholders’ objectives and attitude towards risk?
How does an organization ensure that its units are operating within bounds of the accepted risk?
These questions are embodied in the notion of an entity’s “risk appetite.”
What therefore is Risk Appetite?
Risk appetite is the amount of risk, on a broad level; an organization is willing to accept in pursuit of value. OR
The total impact of risk an organization is willing to accept in the pursuit of its strategic objectives
Each organization pursues various objectives to add value and should broadly understand the risk it is willing to undertake in doing so.
An organization with an aggressive appetite for risk might set aggressive goals, while an organization that is risk-averse, with a low appetite for risk, might set conservative goals.
Factors that influence an organization’s risk appetite are:
To be continued...
For further enquiries, contact
The Director General / Chief Executive
Association of Enterprise Risk Management Professionals
Tel 07062206653, 08033468451, 07088905252
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