Risk Appetite is an often used phrase in corporate and professional world to showcase how much of a risk taker a person is, or how much risk a situation can warrant and afford.
It would have a wide variability. Depending on the kind of business, service, impact on end user, direct and/or indirect.
Being a part of some huge Finance driven and platformed organizations and departments, I have seen Risk up close and the scare it carries for the business. It always would have a predictive impact in the future that has to be mitigated now, or as some C-Suite would like to say, “yesterday!”
These are organizations which needs to be Risk averse, because risk is in-built into the transactions by it’s very nature of work. Credit rating analysis, Wealth Management, Payable works, or complete P2P value chain. Here, the SBUs and BUs do not need to go find the risk, because it may gain some return, rather risk, in this case needs to be identified proactively, and minimized (not eliminated. It can never it eliminated, ask any LEAN practitioner!)
However, from another vantage point, Risk Appetite also drives all the kinds of business and departments I listed above. How else, would we grant a credit profile to a prospective customer basis some statistical inference? Or how else would an investment banker invest the customer’s money to increase their wealth!
Now coming to those, who would need to have Risk Appetite, to grow, survive and thrive. To begin with, entrepreneurs.
They need to take risks, weigh, measure, evaluate and take steps that brings growth faster in a competitive market. Or with marketing agencies, or with consumer durables which compete in a growing yet time-bound and claustrophobic market!
And quite understandably, Risk Appetite has subjective definitions for each one of us, with a mix of variables which varies in the count of parameters and weight of each one of them too.
Any investor with a decent investment portfolio can give an hour worth of knowledge on Risk taking, and how it can be beneficial, that can be weighed against money. But the challenge comes generally in meeting rooms, when conflicting experiences, each with it’s own merit, clashes in forms of ideas to mitigate a common Risk, the Organizational or Business or Departmental Risk. Sometimes, against it’s Reward or Benefit.
And this subjectivity creates a healthy debate that can be effectively used by a leader for a profitable disruption and/or decision.
What is Risk Appetite for You?Please give your views and comments below.
It would help me and other readers understand your Risk Appetite