What’s a good starting point when you are producing a risk appetite statement for the very first time?
According to risk leaders, this journey often begins with understanding your board's attitudes, tolerance, and appetite – to what extent will the board accept (or not accept) risks to the business?
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What is risk appetite and how do you implement it?
Organisations that are more heavily regulated – such as national infrastructure providers – may be more averse to risks and less worried about the opportunities piece, so it’s important to know the profile of your business when starting out.
What is the threshold?
One risk manager has taken the approach of surveying their board of directors to better understand the threshold.
To explain their process further, they took to Risk Leadership Network’s private messaging service to canvas the views of other risk managers.
The risk manager asked, “I am in the process of developing a risk appetite survey of board members, what type of questions should be included in my survey?"
This prompt inspired a range of helpful responses: here is a round-up of some of the key tips shared.
1. Be clear on your direction
A good appetite statement is forward-looking and clear about direction: where are you going?
Featured resource: 4 questions to ask when assessing your risk appetite statements.
Producing an appetite statement that centres on ‘where you have been’ isn’t fruitful. So, survey questions should be centred on the future.
Here are some questions to consider:
- What is the outlook of your organisation in 5 to 10 years’ time?
- What gaps do you need to bridge to help the business tighten its grip on the future?
- What disruptive technologies could threaten the business and your competitors? Is there a risk of us or our competitors being replaced by companies from a different sector?
- Are supply chains becoming more geocentric and could this present an extra cost to the business?
2. Map out opportunities
To prepare for the survey, map out opportunities and what the future might look like. Conducting a business canvas model might also be helpful in trying to understand what your future outlook is.
One way to build a picture of the future – and the risks/opportunities that might arise – is to come up with a set of scenarios and think about what impact these will have on the businesses.
These scenarios should then be adjusted over time as new information becomes available, keeping your future outlook flexible.
3. Address the elephant in the room
For many businesses, this type of exercise is about balancing ‘constrained thinking’ with ‘unconstrained thinking’ at board level.
Other risks could be described as ‘elephants in the room’ that don’t get discussed. The role of the risk manager – and the appetite survey at board level – is to identify these risks.
Then build the survey around that.
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We host over 30 meetings every month on a range of topics across risk management between leading organisations around the world. This article is just a snippet of the discussion that has taken place between members at one of our risk appetite meetings. If you’d like to join the debate, take a look at our membership options.
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Risk appetite basics – six frequently asked questions, answered
What is risk appetite and how do you implement it?
