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A Short Guide to Risk Appetite
Ashgate Publishing, Sep 2011, Pages: 120
The term 'risk appetite' is used widely and increasingly, but there is no accepted definition on which all agree. This situation is exacerbated by confusion between risk appetite and other risk-related terms, especially risk attitude. This book starts by developing a consistent and coherent taxonomy of these terms, showing how they relate to one another. This allows development of a rich model to explain the complementary and central roles of both risk appetite and risk attitude when individuals or organisations decide how much risk can be taken in a risky and important situation. By progressively deconstructing the full model, we conclude that the key step is to set risk thresholds using risk attitude as the key control point. The book concludes with practical guidance to setting risk thresholds that reflect risk appetite, while properly reflecting organisational risk culture and the individual risk propensities of key stakeholders. This enables individuals and organisations to choose the appropriate risk attitude in order to influence the amount of risk that is taken in any given situation, so that the achievement of objectives is optimised.
This book is relevant to anyone involved with implementing risk management, including risk practitioners, senior managers and directors responsible for corporate governance, project and programme managers and their teams. It will also be of interest to HR professionals and others interested in organisational or behavioural psychology, as well as students, researchers and practitioners interested in decision-making under uncertainty, although the book presents a pragmatic approach rather than a theoretical study.
The book requires no prior knowledge of risk appetite, or other related risk-terms. The book is appropriate for an international audience, since the principles are generic, and apply to all situations and industries where people are managing risk. However the subject matter of this book will be particularly attractive to people working in business or public service in countries where risk appetite has become a focus of corporate governance requirements. This includes UK, US, Canada, Australia, New Zealand and South Africa, among others.
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