Appetite on the Rocks

You have an appetite statement that is expressed in terms of the risk you are willing to take to achieve your objectives and you have started operationalising it via your policies, frameworks, processes and systems. Next is training.

Who is going to review all of your key policies, frameworks, processes and systems to ensure they align with the risk appetite statement and provide good guidance to help staff make good risk-based decisions within appetite for risk? You? Big job, even if you had the authority to modify them. The answer is: the people working for the executive and the staff who work for them. Which means, they are going to need to have more than a good understanding of the statement.

When I am asked to train management in the organisation’s appetite for risk I always use a “life saver flags on the beach” analogy. Here in Australia we have a prominent beach culture and so everyone gets it. I explain that the job of the board and executive is to articulate as best they can, where the flags should be placed on the beach – which indicate where it is “safe to play”. That is, it is safe to make decisions within them. If you are too far towards the rocks, you are taking more risk than they want and you need to get back between the flags. If you are outside the flag towards the other end of the beach, you are being too cautious and you need to take more risk to increase the potential reward for the risks being taken.

In my experience, you can give leaders clarity and inspiration on appetite for risk in 60 to 90 minutes. A sound investment of everyone’s time, given that the result is faster decisions made within the appetite for risk.

Next week is stage three of operationalising your appetite for business.