In this video, we provide a practical guide for understanding and communicating risk appetite in non-financial companies. We cover the importance of risk appetite as a risk-reward trade-off and provide examples of how to use tools such as the efficient frontier, simulations, and risk profiles to help decision makers understand and make informed decisions about risk. This is a must-watch for risk managers looking to apply the concept of risk appetite in their organizations.
Apparently organisations should have a risk appetite and a risk profile, so do it as well. It’s not real, but will win some brawny points with the stakeholders.
A4. Develop a high level risk profile, linking key risks to strategic objectives - this is basically a colourful risk register. You can talk to some of the key decision makers, but you really don’t have to. Competitor 10K reports and sample risk registers like the one I have will do the job.
A5. Document risk appetite - did you notice how I put risk appetite after risk profile? This is just to show that RM1 is just window dressing, it doesn’t matter how you do it, it’s not real. You don’t believe me it’s not real, well allow Grant Purdy, one of the creators of the AS/NZS 4360 and ISO31000, share his sobering views. This is a must watch for all risk managers. Jack Jones, Chairman, The FAIR Institute, also has a compelling case why RM1 is a waste of time, but still necessary unfortunately.
Documenting risk appetite is super simple:
review existing Board level policies
identify any corporate or regulatory limits, for example investment deals above 1B can only be approved by the Board, that’s a limit. Or zero tolerance on safety incidents, AML or bribery, those are also limits. Financial delegations are also limits.
collect all existing limits and put them into a single document. Call it risk appetite statement. Laminate it and use colours to show auditors you are serious about it.
Congratulations, now you have a nifty package to take to rating agencies, insurance companies and banks. This RM1 documentation will allow your company to improve credit rating, get cheaper financing from the banks and get lower premiums from the insurance companies. The amount of money saved by just doing RM1 will cover risk team salaries for the next 5 years at least.
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