Risk Appetite – Aligning the Poles

Your staff come to work and bring their best selves (mostly). However, each ‘best self’ can have a different appetite for risk taking. If you haven’t already, survey their attitude to risk to their personal safety or their personal financial risk. Here in lies the need for them to understand the organisation’s appetite for risk taking, so that they can make the right decision way more often than not.

There is another often overlooked need for the board and exec’s appetite for risk taking to be embedded in the DNA of your organisation. This story I tell in my book Risky Business: How Successful Organisations Embrace Uncertainty, explains it:

There’s one more phenomenon you need to understand, however. It became very clear to me years ago when I was running risk champions training for a team tasked with putting workers in a high-risk and emotionally stressful environment. I was talking about the need to design policies, processes and systems to guide decision making ‘so staff will make the same decision the CEO would make’. Then, from the middle of the pack of 25 in the room came, ‘Bullshit! The CEO would not know shit when it comes to some of the decisions we need to make.’

And there you have it. Leaders hire staff with specialist skills to get the job done. The CEO can’t be a specialist in all areas. So what happens in organisations is that senior management are trying to influence decision making of staff. Meanwhile staff are looking back at the executives in their ‘ivory tower’ and saying to themselves, ‘They have no idea!’ and they try to influence the executive. And poor middle management is caught in the middle.

It’s like what happens when two magnets are brought close to each other when the poles are reversed (figure 8.1). The flow of the magnetic field from north to south is interrupted. Getting risk appetite right is the beginning of alignment of the poles, where decisions are made within appetite, or are escalated if they are not, and information is fed back to decision makers to increase the knowledge and overall capability of staff throughout the organisation.

Figure 8.1: Risk appetite – aligning the poles

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I believe risk appetite matters. BUT it is not as easy as saying, ‘Let’s have one.’

If you want to know more about my thoughts on risk appetite download my whitepaper or, better still, buy my book and gain access to my latest risk appetite templates.

Stay safe!

PS. I’m thrilled to say my book Risky Business hit the #1 Amazon Best Seller list recently in the Risk Management Category. If you have read it and think it’s worthy of a review, I would greatly appreciate your time in leaving one. You would make this risk nerd very, very happy. You can email it through to me HERE.