“It is for the Board and senior management to determine the relative strategic importance of the organisation’s propensity to take risks and its propensity to exercise control and to influence that relative focus throughout the organisation.” — Richard Anderson, Institute of Risk Management
ASSESSING RISK
“7.14% are ‘cautious and choose the safest option to avoid personal responsibility for negative outcomes’”— Interim results, 2023-4 Risk Appetite Survey
Although efforts to quantify risk appetite can often instil false confidence, the reality is that, despite confused terminology and poor definitions, there are practical benefits in formally aligning decision making with an equally formalised consideration of possible outcomes.
Conversations about risk appetite aren’t pointless; they
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establish the foundation for a more practical practical approach to risk,
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introduce the idea of operational risk management
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gauge the degree of risk an organisation is willing to tolerate, and
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provide the tactical blueprint outlining how these operational risks will be negotiated.
YOUR PROPENSITY FOR RISK
“32.9% regard new technologies as ‘an essential investment to stay ahead of the curve’.” — Interim results, 2023-2024 Risk Appetite Survey
All commercial operations – in fact all human activity – involves dealing with uncertainty, knowledge gaps and potential adverse outcomes. Understanding and managing the potential consequences of business activity is a key element of any well-run business. If you are a Licensee or Principal, you should use risk management analysis to articulate your preferences and underpin your pursuit of value and your strategic objectives.
But, to be effective, your analysis has to be transformed into action; clear boundaries and defined limits need to be embedded in your business.
Unfortunately, the reality is that few licensees ever formally assess their risk culture. Probably, because “culture” is seen to be obvious but, more practically, because it’s seen to be too difficult to assess.
It needn’t be complicated.
Just remember that the purpose of your assessment is to simply determine the “nature and extent of the significant risks you are willing to take to achieve your strategic objectives”and the “amount and type of risk that you are willing to pursue or retain”.
Ultimately, your process should result in the development of a Risk Appetite Statement that provides you with direction and boundaries and helps you to identify (and explain) how risks and associated rewards are to be balanced.
To assist you to articulate your preferences we’ve created a simple 20 question survey that’s designed to help you assess your practical appetite for risk.
Click here to participate in our Risk Appetite Survey.
The Risk Management Survey will help you (and your staff) to to consider your personal risk preferences and propensities, including your willingness to take risks and our willingness and capacity to manage those risks through technology, management skill, regular monitoring and structured controls.
In addition to helping you identify your preferences and propensities, the anonymised and aggregated data will provide us all with an insight into how other licensees approach and manage risk. Every participant will receive a copy of the final report.
The Survey will remain open until 29 February 2024.
The survey is not restricted to Directors, Responsible Managers or Principals; if you work in, or for, a financial services business (in any capacity) then your participation is welcome.
