Some areas such as health and safety only have downside risk. Why is it usually impossible to fully eliminate this risk?
The cost may be prohibitively high, or a degree or residual risk will exist as long as a particular process goes ahead.
What are the two most common definitions of risk appetite?
1 The level or risk exposure an organisation is prepared to ACCEPT
2 The organisation’s WILLINGNESS to take a defined level of risk in pursuit of its objectives.
What are Ashby’s three roles of risk appetite?
1 Support risk management decisions
2 Support strategic decision making
3 Support governance and internal control activities
How does risk appetite act as a benchmark for risk management decisions?
Managers can determine whether a decision is “within appetite”, or whether they need to decrease or even increase the level of risk taken.
Risk appetite can help allocated risk management resources more e__________ and improve buy-in for risk management activities by highlighting the c___________ of decisions.
efficiently
consequences
What is meant by “risk premium”?
The higher expected level of return associated with a greater level of risk taking.
How does risk appetite support strategic decision making?
An organisations without clear appetite could miss value-add opportunities, or make decisions exposing the organisation too much risk.
Give an example of an organisation that did not take sufficient risk.
Kodak - failure to develop the digital camera.
IBM - failure to develop personal computer.
Give an example of an organsiation that took too much risk.
Northern Rock or Lehman Brothers prior to 2007-8 financial crash.