How your risk appetite statement can guide decision making

2 min read
Jul 13, 2023 11:29:39 AM

Risk appetite statements are one of the most misunderstood and misused tools available to Boards and Senior Leadership Teams .

The purpose of a risk appetite statement is to provide a definitive compass, guiding both the Board and staff towards a shared understanding of what we are willing to embrace and explore. It serves as a beacon, illuminating the areas where we have zero tolerance for risk, as well as the spaces where we can be more adventurous. By articulating our stance on risk, we empower our staff to make informed decisions and take calculated steps towards our strategic impact.

Within an organisation, there are certain domains where we cannot afford to compromise. Take, for instance, client and staff safety. Given the nature of our industry, be it in disability services, healthcare, or any other similar high-risk field, we must articulate a zero-risk appetite when it comes to anything that jeopardizes the well-being of our clients or team members. The health and safety of our clients demand unwavering commitment, leaving no room for tolerance towards potential harm. This provides crystal clear direction to staff that there is a zero appetite for anything that would result in health and safety breaches.

However, growth and progress will always require a level of risk-taking. Exploring new avenues and expanding strategic impact present tremendous opportunities for advancement. In such instances, we maintain a moderate risk appetite. By embracing calculated risks, we can tap into uncharted territories, seize emerging prospects, and further enhance our impact. 

Yet, it is through strategic initiatives that align with our vision and existing strategic plan where we display our highest risk appetite. We encourage our teams to think innovatively and envision the future. By daring to explore unorthodox approaches and leveraging cutting-edge ideas, we can revolutionise our industry and fulfill our long-term objectives. This is the realm where audacious ideas and calculated risk intertwine, allowing us to push boundaries and make a lasting impact. This is where the culture of innovate / venture / explore is best expressed.

By clearly defining our risk appetite, we instil a shared sense of purpose among our senior staff and Board members. For example. Board and staff understand that their actions and decisions must prioritize the safety of staff and clients. In the instances where safety is at stake, the Board entrusts staff to implement world-class policies and procedures to minimize potential risks and mitigate any adverse consequences. The risk appetite statement serves as a constant reminder of core values and non-negotiable principles.

In essence, the risk appetite statement acts as a compass, guiding us through uncharted waters and ensuring we remain focused on what truly matters. It empowers our teams to make informed choices, fosters a culture of responsibility, and keeps us moving towards our strategic goals. As leaders, it is our duty to set the course, and by establishing a well-defined and simple risk appetite statement, we facilitate clarity and focus from both staff and Board.

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