Risk Appetite

Question 1

what is risk appetite?

Answer 1

refers to the amount and type of risk an organisation is willing to take to achieve its objectives, critical part of risk management and guides the decision making process

Question 2

why is risk appetite important?

Answer 2

• aligns risk taking with organisation strategy and objectives
• provides a framework for consistent decision making
• helps in maintaining a balance between risk and opportunity
• enhances stakeholder confidence by demonstrating controlled risk-taking

Question 3

what factors is the risk appetite structure made up of?

Answer 3

• the risk appetite itself
• risk tolerance (quantitative presentation of the risk)
• key controls (to ensure risks are adhered to)
• risk limits (indicators and thresholds)
• governance

Question 4

what does the process of establishing a risk appetite consist of?

Answer 4

• assessment of the current risk profile
• stakeholder engagement
• defining the risk appetite
• communication and implementation
• monitoring and review

Question 5

what elements make up the risk appetite framework?

Answer 5

• Governance Structure (roles and responsibilities for setting and
  overseeing risk appetite)
• Risk Assessment Processes
• Reporting and Escalation Mechanisms
• Integration with Strategic Planning

Question 6

what are the challenges in setting the risk appetite?

Answer 6

• balancing risk and opportunity
• quantifying the risk appetite
• communication and buy-in
• adaption to change

Question 7

what is the bottom-up approach to the risk appetite?

Answer 7

An alternative, more pragmatic method defines risk appetite based on actual business actions, where risk tolerance is implicitly reflected

Question 8

what are the benefits of a well defined risk appetite?

Answer 8

• enhanced decision making
• improved risk management
• increased stakeholder confidence
• alignment of risk and strategy
• regulatory compliance

Question 9

what is the top-down approach to the risk appetite?

Answer 9

Risk appetite is typically defined from the top, beginning with the board, and allocated to different businesses, with corresponding risk management measures implemented at various organizational levels

Question 10

what are the key indicators for operational risk?

Answer 10

• aggressive profit growth targets
• under-investment in infrastructure and people
• regulatory negligence
• top level wishful risk appetite statements that are not consistently tied to actual controls and limits