Risk Alert Newsletter



RISK APPETITE


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:

Environment

People

Business Systems

Policies

Regulators

Shareholders

Employees

Rating Agencies

Customers

Competition

Strategy

Organization Culture 

To be continued...

 

 For further enquiries, contact

The Director General / Chief Executive

 Association of Enterprise Risk Management Professionals

 Tel 07062206653, 08033468451, 07088905252

Email; info@aermp.org ; dg@aermp.org (www.aermp.org)

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