Risk appetite does not exist in a vacuum; rather, it is an integral part of an organization's strategies for achieving objectives. The concept of risk appetite/management permeates all organizations.

A statement of risk appetite is an effective way to communicate across an organization a sense of acceptable risks.  In addition it provides a basis for evaluating and monitoring the amount of risk an organization faces to determine whether the risk has risen above an acceptable range.

Organizations can, and should, come to terms with what they believe to be their appetite for risk.  Once stated, risk appetite can be communicated and refined over time as the organization becomes more experienced with the concept.

Most importantly, developing risk appetite is the start of an organizations commitment to effective enterprise risk management.  As with pursuing enterprise objectives, understanding risk appetite will add value to your total organizational goals.

• Hazard Risk
• Financial Risk
• Liquidity Risk
• Market Risk

RISK THE POTENTIAL FOR LOSS

Identify Risk Responses:

• Accept = monitor
• Avoid = eliminate
• Reduce = institute controls
• Share = partner with someone = insurance

DETERMINE RISK APPETITE

• Risk appetite is the amount of risk - on a broad level - an entity is willing to accept in pursuit of value.
• Use quantitative or qualitative terms (such as earnings at risk vs reputation risk) and consider risk tolerance (range of acceptable variation).