Do You Have a Hunger for Risk?

That Part of Risk Management We Overlook

You would think that with all the focus on risk management these past few years that most companies would be well versed and very comprehensive in their practices.  That, however, would not be the right conclusion. Even with risk assessments, mature risk management practices and policies, and all of the attention by regulators and other stakeholders on risk, there is one area that is lagging behind. Risk Appetite

From the basic risk appetite statement to measuring compliance to approved levels of risk, organizations often fall short in this very important area of risk governance. Not because of ignorance or misunderstanding, but because of an inability to monitor, analyze and measure risks exceptions.

There have been countless times where companies have told Boards of Directors that they are “accepting the risk”. However, this acceptance is not measure, monitored and often never followed up on by the Board. Risk Appetite is only as good as the governance controls that accompany it.  

We agree with the ability to accept risk. We would encourage that that acceptance be done in a conscientious manner.  Each time you accept risk follow these simple steps:

• Determine its impact to your risk appetite.
• Limit the time and amount of risk you are will to accept
• Monitor the impact monthly of your decision to accept risk
• Report to the Board the impact of risk acceptances to the corporate risk appetite.
• Close risk acceptances when they are no longer applicable.

These small steps will enhance your ability to exploit market opportunities by managing risk better.