How to effectively determine your company’s risk appetite?

How to effectively determine your company’s risk appetite?

When investing in any market, your first step should be determining your risk appetite.
You might feel comfortable or come across the uncertainty which can bring destructive strategy. Many experts report cases where the company does not take on sufficient risk to attain its aggressive business goals. Enterprise Risk Management teams should assure that managers of all departments react similarly to same risks. It is difficult to apply adequate controls without having a satisfactory understanding of what risk categories and how much risk the company is willing to accept.

  • Define acceptable boundaries. Top management along with the board members should agree on setting a boundary on a probability and impact framework. Be more specific on your risk appetite framework.
  • Determine the level of risk exposure that requires immediate action. A risk can be evaluated in the risk appetite table based on the impact and likelihood numbers.
  • Associate the risk appetite to the company’s strategic objectives. Risk appetite is a strategic determination based on long-term objectives.

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