An anonymous individual (maybe AI) has shared some of theirperspectives on risk appetite in a recent LinkedIn post: How do you set and review risk appetite with your board and senior management?
It tells us that:
Risk appetite is the amount and type of risk that an organization is willing and able to take to achieve its objectives. It is a key element of risk management and strategic planning, as it helps align the board, senior management, and staff on the expectations and boundaries of risk taking. However, setting and reviewing risk appetite is not a one-time or static exercise. It requires ongoing dialogue, monitoring, and adjustment to reflect the changing internal and external environment.
One of my problems is that the decision to take or not to take a risk should include consideration of all the potential consequences of that decision – and they include not only the downside risk, but also the potential upsides.
For example, I don’t like the idea of running onto a freeway. But if my child has wandered into danger, I might take that risk.
A more serious issue is that I don’t believe it is practical to establish an “amount” of risk. The level of risk is a range, not a point, and while it is possible to calculate a theoretical value (for example using Monte Carlo) does that value make any sense?…
