Risk appetite is an essential component of any successful business strategy. It's the amount and type of risk that an organization is willing to take on in order to achieve its goals. But getting risk appetite right can be tricky, especially in today's fast-paced and ever-changing business environment. High inflation, pending recession, intense competition and the need for a strong digital strategy (customer experience, engagement and technology enhancements, new distribution channels, leveraging different ecosystems, increasing the use of data analytics and establishing digital metrics and measurements) are only a few of the challenges that organizations face when trying to strike the right balance between risk and reward. In this article, we'll take a closer look at what it takes to get risk appetite right and explore some strategies for managing risk in an uncertain environment.
As part of our services to clients, we have seen leaders spend considerable time on enterprise risk management (ERM): risk identification, assessment, response and monitoring activities, all tied to strategy, business objectives and performance. And while that is an important piece of the puzzle, sometimes what is lacking is enough time spent on defining and ensuring risk appetite is understood and consistent within the organization as it aligns with strategy, mission and values. In other words, the amount of risk leadership within an organization communicates they are willing to accept in pursuit of their goals does not always align with the actions, investments and priorities. That's where risks can emerge.
Examples
Misaligned IT security risk appetite and investment
A leader states the organization has a low-risk appetite for IT security risk (while recognizing cybersecurity risk as a high risk); however, investments made versus requested and projects prioritized for IT security do not align with the stated risk appetite and communication to stakeholders.
