The importance of clearly communicating risk appetite.

How often do decisions get deferred at Board level? Is it due to the level of uncertainty? That’s fine, sometimes it is better to defer. However, what I have witnessed way too often is a deferment due to a lack of clarity on the agreed appetite for risk.

If your risk appetite isn’t clearly understood by the board, the executive team, or those preparing decision papers, it’s no surprise that recommendations may be deferred. When papers arrive without commentary on whether the recommendation falls within the organisation’s appetite for risk, it creates uncertainty – and uncertainty leads to delay.

This isn’t uncommon. Plenty of organisations have risk appetite statements, but let’s be honest – most are filled with jargon and vague language. “We take a moderate approach to risk” means nothing if no one knows what “moderate” looks like in practice. And many are not operationalised through simple requirements like commentary on risk appetite for papers for decision.

So how do you fix it? First, risk appetite needs to be tangible. If a company says it’s comfortable with moderate risk, what does that actually mean in a market expansion, a product launch, or an investment decision? It has to be translated into real-world examples that teams can understand and apply.

Second, it needs to be embedded in decision making. A risk appetite statement sitting in a document won’t change anything. But when it’s built into decision making frameworks, mapped into processes, and referenced regularly in leadership discussions, it starts to guide behaviour in a meaningful way.

C-Suite leaders: If you walked into work tomorrow and asked five different leaders what your company’s risk appetite is, would you get the same answer? If not, there’s work to do.

Risk leaders: Assuming your RAS is a good one. Have you trained leaders in applying it when preparing papers for decision to the board?