Risk appetite

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Risk appetite is the concept to help guide the organization's approach to risk and risk management.

Video Risk appetite

Definisi

Risk appetite is the level of risk that an organization prepares to receive in achieving its objectives, and before action is deemed necessary to reduce risk. This represents a balance between the potential benefits of innovation and threats that change inevitably. The ISO 31000 risk management standard refers to risk appetite as "The amount and type of risk that an organization prepares to pursue, maintain or take". In the literal sense, defining your appetite means defining how "hungry" you are for risk.

Maps Risk appetite

Level of risk appetite

The appropriate level will depend on the nature of the work performed and the goal being pursued. For example, where public safety is critical (eg operating a nuclear power plant), appetite will tend to be low, while for innovative projects (eg early development on innovative computer programs) may be very high, with short-term acceptance of failures that can open the path to long-term success.

Below is an example of a broad approach to establishing the risk appetite that a business can adopt to ensure a proportional risk response by considering their business objectives.

• Averse : Avoidance of risk and uncertainty is the organization's primary goal.
• Minimum : Preferences for ultra-secure options are low risk and have only limited potential rewards.
• Be careful : Preferences for secure options that have a low risk level and may only have limited potential for rewards.
• Open : Willing to consider all potential options and choose the most likely to result in successful submissions, while also providing acceptable levels of reward and value for money.
• Hungry : Eager to be innovative and choose options that offer higher business gifts, regardless of the greater innate risk.

Appropriate approaches can vary throughout the organization, with different business sections adopting tastes that reflect their particular role, with an overall risk appetite framework for ensuring consistency.

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Measure risk appetite

Appropriate measurements are not always possible and risk appetite will sometimes be determined by broad approach statements. An organization may have a taste for some type of risk and dislike others, depending on the context and potential loss or gain.

However, often actions can be developed for different risk categories. For example, it might help the project to know what level of delay or financial loss is allowed to be borne. If the organization has a standard measure to determine the impact and possible risks, it can be used to determine the maximum level of risk that can be tolerated before action is taken to reduce it.

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Goals and benefits

By defining risk appetite, organizations can achieve the right balance between uncontrolled innovation and excessive caution. This can guide people at the permitted level of risk and encourage consistency across an organization's approach.

Determining acceptable levels of risk also means that resources are not spent to reduce risks already at an acceptable level.

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The main field of risk appetite

In the literature there are six main areas of risk appetite:

1. financially
2. health
3. recreation
4. ethical
5. social
6. information

There is often confusion between risk management and risk appetite, with the firmness of the former now recovering some of the lost ground from the last obscurity. Coming correctly risk appetite is a consequence of rigorous risk management analysis not a precursor. Simple risk management techniques deal with the impact of hazardous events, but this ignores the possible securities effects of poor results, such as being technically bankrupt. The quantity that can be risky depends on the available cover if there is a loss, and proper analysis considers this. "Appetite" follows logically from this analysis. For example, an organization must be "hungry for risk" if it has more than a cover compared to its competitors and should therefore be able to gain greater returns in the market from high-risk businesses.

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See also

• Enterprise risk management
• Risk analysis

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References

Source of the article : Wikipedia