23 The role of risk appetite in developing risk decision accountability Risk

23 the role of risk appetite in developing risk

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2.3 The role of risk appetite in developing risk decision accountability Risk appetite can be defined as ‘the amount and type of risk that an organization is willing to take in order to meet their strategic objectives. Organizations will have different risk appetites depending on their sector, culture and objectives. A range of appetites exist for different risks and these may change over time. Risk appetite and tolerance need to be high on any board's agenda and is a core consideration of an enterprise risk management approach. IRM’s guidance provides practical direction, advice and information to support boardroom debate. While risk appetite will always mean different things to different people, a properly communicated, appropriate risk appetite statement can actively help organizations achieve goals and support sustainability. “The risk appetite statement is generally considered the hardest part of any enterprise risk management implementation. However, without clearly defined, measurable tolerances the whole risk cycle and any risk framework is arguably at a halt”. (Jill Douglas, 2011). For instance, many financial risks can be absorbed or transferred through the use of a hedge, such as options, forwards and other directives. while legal risks might be mitigated through unique contract language. If managers believe that the firm is suited to absorb potential losses in the event the negative outcome occurs, they will have a larger appetite for risk given their capabilities to manage it. (Boundless, 2016)
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2.4 The contribution made by ISO31000:2009 In November 2009, AS/NZS ISO 31000: 2009 replaced the previous Australian and New Zealand risk management standard AS/NZS 4360: 2004 and provides principles and general guidelines for developing risk management frameworks and programs. The flow chart shows the steps of approach below: Figure1. AS/NZS ISO 31000:2009 Approach (Source: ) According to the flow chart above, the advantages of the ISO31000 approach to risk governance are clear to see. This approach is not a stand-alone method assist for decision maker analysis and solve the risks during the process of risk governance. It is a comprehensive framework of decision making in risk management. Using this approach could assist organization increase the likelihood of achievement objectives and improve the ability of recognition of opportunities and challenges,
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which means it would reduce the risks while improve the effective decision-making. In the international standard ISO31000 risk management - risk assessment and governance, clearly shows the five basic questions need to be addressed in the risk assessment process:
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