The blog post that was read most often both in 2020 and all-time was written in 2011. Just what is risk appetite and how does it differ from risk tolerance? has been viewed nearly 80,000 times.
Another of my most-read posts in 2020 is more recent, shared in May of last year. COSO still believes in risk appetite statements. In it, I shared ten questions to challenge those who continue to believe they are not only necessary (for example to comply with regulator demands) but also useful in making business decisions.
But my most recent post on the topic was in October 2020, Are you hungry for a better approach to risk appetite? It is a review of an excellent thought leadership paper by Chris Burt.
The last two, especially, are useful if you have not read them before.
But let’s revisit the topic, as if from scratch.
xx
What is risk appetite? It is defined by COSO as the “amount of risk, on a broad level, an organization is willing to accept in pursuit of value.”
Before analyzing that nebulous statement, it is useful to consider why we are even thinking about risk appetite statements.
xx
Basically, regulators and board members influenced by them want to prevent management from taking too much risk.
By that, I mean acting or failing to act in a way that puts the success, even…
