Use Risk Appetite effectively
Written by Gareth Byatt, IRM APAC Global Ambassador; Principal Consultant, Risk Insight Consulting
This piece is adapted and reproduced by kind permission from StrategicRISK.
Risk managers who are not engaging with every level of their organisation are at risk of having misalignment in risk-informed decision-making, according to Gareth Byatt, principal consultant at Risk Insight Consulting and the Institute of Risk Management’s Asia-Pacific ambassador.
As Gareth described at the StrategicRISK APAC Forum in Singapore on 30th May 2019, “Risk Managers and Risk teams should make sure that they talk to lots of different people, from the C-suite through to operations, functional managers and frontline managers. If you’re talking to them and having simple discussions about risk you will pick up on important things. That’s the good thing about risk appetite - you can keep it simple when you talk with people. Engage with them about what objectives they are working towards, and ask this question: So, what’s your risk appetite for the risks you face to achieving your objectives?”
“Speaking to everyone is important to make sure that they’re aligned. As a risk team, one of the things that you should be doing is talking to people across your organisation because normally you’re one of the few functions that can actually do that, therefore, you should be making sure that what board and execs think (which may take the form of a formal Risk Appetite Statement, or it may not) is aligned all the way through to front line, whilst appreciating the different priorities that different teams have.
“Now, whilst the board team might be thinking about things like gearing and liquidity ratios and their overall strategy, I think we should link up with the kind of risks that people across the organisation are taking and managing in all areas. You want to help people to achieve their objectives. Risk appetite is the amount of risk that we are willing to seek or accept in pursuit of our objectives, and we can use this facet of risk management to see how aligned people’s decision-making is to achieve what should be aligned objectives.” Byatt added.
Byatt said: “Transparency and visibility is important. And, of course, this relates strongly to organisational culture and decision-making, and alignment on what a strategy is and how to deliver it, because if you’ve got a good culture then people will have these discussions (which can sometimes be tough and challenging), to help ensure critical decision-making in a de-biased manner.”
Download IRM's Risk Appetite Statements booklet here.