Mastering Risk Management

CONTROL APPETITE AS A PART OF RISK APPETITE

Some people may think that risk appetite includes controls. However, control appetite is fundamentally different. As an example, consider the risk ‘Loss of key staff’ and two of its controls ‘Performance appraisal’ and ‘Salary surveys’. The quantitative risk appetite for ‘Loss of key staff’ may be the loss of one key person every three years. This is achieved by a control appetite for performance appraisal that the appraisals are completed every 12 months, and a control appetite for salary surveys that all salaries are within the second quartile. It is therefore clear that risk appetite is linked with control appetite, but that control appetite is completely separate. This is analogous to the link ...