Mastering Risk Management

RISK APPETITE IN THE BUSINESS

Determining the risk appetite of a firm is an important component of any firm’s risk management approach. Used effectively, risk appetite will influence the risk culture (and vice versa), risk operating style and risk resource allocation. As noted above, risk appetite represents the firm’s view of how much risk can be taken to help achieve business objectives, while respecting the constraints within which the firm operates.

While management at all levels, of course, plays a fundamental role in determining the risk appetite of the firm, it should be approved by the board. This sends a clear signal to all staff that the risk appetite agreed by the board should clearly govern the activities of all employees. It also ...