Risk appetite is a qualitative assessment of a company’s risk attitude. The amount of risk that a business is willing to take on or keep in order to achieve its goals is referred to as risk appetite. It is a vital tool for good decision-making as well as project performance management. Identifying and describing a business risk appetite allows it to make more informed decisions by taking risk into account more thoroughly. A carefully defined risk appetite will guarantee those project decisions are consistent with the organization’s general strategic goals.
Risk appetite is defined by the ISO 31000 risk management standard as the “amount and type of risk that a company is willing to seek, keep, or accept.” This notion aids in the direction of an organization’s risk and risk management strategy. The risk appetites of various companies will differ. This will depend on the industry, strategic goals, and types of projects completed. Companies with a high-risk appetite are willing to take on more risks in exchange for a higher return. High impact risks and high probability will be avoided by organizations with a low risk appetite.
A company’s risk appetite can change over the course of a project so it is critical to keep track of it and adjust the risk management approach as needed. This is because the level of risk that a company is willing to accept determines the risk response methods that a company will employ in the event of prospective project risks. The Board of Directors is usually in charge of determining an organization’s risk appetite, and risk appetite levels might even differ within a company.