The value of an effective Risk Appetite Framework can be significant. The key drivers of this are the desire of Boards to have a better line of sight into organisational risk and the influence of external stakeholder expectations and regulator guidance.
This is reinforced by the need to manage risk taking/control in a consistent and integrated manner and to ensure resources can support the amount and type of risk taken.
Our Risk Appetite Framework encompasses two integrated elements comprising Risk Appetite Statement (RAS) and Risk Settings Statement (RSS):
The RAS articulates the type of risks arising from an organisation’s strategy and the amount of risk that can be accepted given current capacity. This can be expressed in the form of a Risk Posture for each risk (Board responsibility).
The RSS defines the way the RAS risks should be managed given the organisational objectives, and incorporates thresholds, indicators, targets and monitoring and reporting protocols (Management responsibility).
A properly developed and implemented Risk Appetite Framework provides the following benefits:
Provides detailed guidance on the risks the organisation deems undesirable that need to be controlled or avoided by management operating the business.
Enables the organisation to improve the efficiency and scope of the allocation of resources to manage risk.
Enables the pursuit of business opportunities that would otherwise be rejected/ignored, whilst ensuring risk taking is conducted appropriately.
Enables the Board and Management to agree on a framework for risk management in a language that is understandable by both.
Enables existing risk reporting to become more sensitive to Risk Tolerance levels allowing better early warning indicators for risk issues, whilst focusing reporting on the risks that matter.
Helps Boards and Management to make better decisions as risk objectives are operationalised, measured, monitored and reported upon.