Risk e-Views Vol 41 May 2014 – Risk Leadership: Risk Appetite and the Unmentionable

Risk taking is not just essential it is unavoidable. The other evening, I was waiting at a busy intersection with complicated turning options for vehicles. I saw a green light, took two steps, realised something was wrong and hightailed it back to the curb. Yes, it was the green light for the cars and my pre-programmed and distracted brain misinterpreted it as a signal for me to commence my crossing.

How could this “incident” be avoided? Automatic barriers preventing me from crossing that are linked to the lights? The same system at every busy intersection? That infrastructure would cost millions – could this money be better spent on health or education?

My point is, society has by default chosen a background level of risk to life and limb that is at least approaching tolerable although we continue to try and improve safety as our knowledge, technology and wealth increases.

Has anyone written down our society’s appetite for risk? Should we? Would we?

This is a truly vexing question and in an organisational context, managers often either choose not to document their implied risk appetite or write down what they believe is palatable rather than the truth. Does this impede risk-based decision-making in the organisation or do staff inherently know the accepted level?

In my experience, the larger the organisation, the less likely staff have adopted the same risk appetite that senior management have for risk. Documenting and communicating risk appetite both ensures all senior managers are on the same page and definitely drives decision-making further down the organisation. 

If you don’t have one, have a look at this sample Risk Appetite Statement and let me know if you would like some help.