In their McKinsey article “Decision-making: how leaders can get out of the way”, Iskandar Amino, Aaron De Smet and Kanika Kakkar highlight the need to devolve decision making for organisations to become more agile. One thing they did not mention was that devolved decision making needs communication about the organisation’s appetite for risk in certain areas of the business. In enterprise risk management terms, that means operationalising a Risk Appetite Statement (RAS).
I have written frequently about the pros and cons of developing a RAS. I recognise how challenging it can be, however, more and more organisations have managed to achieve sensible, helpful statements, supported in many cases with well thought through KRIs. However, more and more I am being called on to help operationalise the RAS.
Over the coming weeks I am going to reflect on what is most important when it comes to operationalising your RAS. I’ll give you some tips on what to avoid and what to work hardest on. Before I do, for those of you who still question if a RAS is worth pursuing, let me ask you one question: “Does everyone in your organisation have the same appetite for risk taking?”. One of my favourite blogs highlights our varying appetites for risk – Bazza and The Publican’s Appetite for Risk. Thanks again “Mike” for letting me use that photo of your backside ☺
If you would like to read more on risk appetite, here is the chapter on risk appetite from my 2021 book Risky Business: How Successful Organisations Embrace Uncertainty.