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DEFINING THE RISK APPETITE/RISK TOLERANCE OF THE ORGANISATIONWhilst the financial services sector has led thinking on how to develop and setrisk appetite (and the financial terms often used in this area tend to reflect this),the tired belief still found in other industries that this subject “concerns onlyfinancial services and doesn’t apply to us” needs to be firmly rejected.It is important to remember, however, that there is no single ‘one size fits all’approach to the development and setting of risk appetite. The content will verymuch depend on culture, industry sector, availability and quality of data andlevels of existing enterprise risk management (ERM) maturity.SUPPORTING THE BOARD’S NEEDSFrom a board’s perspective there are a number of advantages to adopting theapproach described in this chapter:■ A holistic approach to risk management is generated, allowing the board toachieve a better understanding of the key threats to the business that canresult in serious financial or reputational damage;■ An environment is created that will allow the board to become moreengaged in risk issues and help promote buy-in at senior managementlevels to ensure that a risk-based approach is adopted in strategic decisionmakingacross the business;■ The board will be in a better position to deal with conflicts that may arisebetween different stakeholders, ensuring all views are aligned with theorganisation’s strategy.KEY ACTIONS FOR BOARD MEMBERS■ Set and agree the overall risk appetite and corporate risk tolerance;■ Ensure that the risk appetite statement is signed off and communicatedwell, so that expectations are set in relation to management’s risk taking;■ Regularly review the organisation’s risk appetite-related tolerances toensure that they are still relevant to the business objectives and the everchangingnature of risk;■ Ensure that the risk appetite review is part of the organisation’s strategyand planning processes.46