Recently I got the honour of becoming course coordinator for ‘Certificate Course on Enterprise Risk Management’ conducted by Institute of Chartered Accountants of India www.icai.org.
This course is spread across 6 week-ends followed by an exam. It is interesting to see that Risk Management is still in infancy and the concept though becoming popular, is still is not understood as it should be.
We had done an interesting exercise of Question and Answer after completion of class room sessions. Over the course of next few weeks I would be taking these questions one be one and deliberate on the same. I welcome feedback of all readers.
Question 1: What is risk appetite?
Risk appetite is a ability of an organization to take risk and digest the risk. Risk appetite can be defined as willingness of an organization to take a risk in terms of cost, revenue, cost, market share, assets, time.
Can risk appetite can be a static number?
Risk appetite cannot be a static number. Risk appetite can and will change over a period of time.
Can Risk appetite can be defined using a number/ formula?
Yes Risk appetite can be defined using numbers or formula. e.g. a company may defined it risk appetite in an area as a % of total revenue, % of total capital employed.
These criteria can be used along with time period to signify risk appetite. e.g. to allocate certain % of revenue for …say 5 years for development of a new product.