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Good Risk Appetite
critical thinking + decision-making
high performanceGareth Byatt
Principal Consultant, Risk Insight Consulting + Director, Satarla AustraliaAPAC Ambassador for the Institute of Risk Management
My aim with this pack
To suggest a way to use risk appetite that can add value to your business.
Risk Appetite became popular after the Global Financial Crisis…It tended to take the form of Risk Appetite Statements…
GFC Regulations Controls Risk Appetite
Sources: https://www.fsb.org/2013/11/r_131118/The IIA https://www.iia.org.uk/resources/risk-management/risk-appetite/?downloadPdf=truehttp://www.mas.gov.sg/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Corporate-Governance/Corporate-Governance-of-Listed-Companies/Code-of-Corporate-Governance.aspx
Source:McKinsey Five-Fifty, Apr 18The 20,000-person start-up
Businesses must be flexible and adaptive to achieve high performance today…
Source: McKinsey – Decision-making in the age of Urgency, April 19https://www.mckinsey.com/business-functions/organization/our-insights/decision-making-in-the-age-of-urgency
How are good decisions made to achieve high performance…?
Be adaptive and make good decisions with the help of Integrated Risk Appetite…
De-biased critical thinking and good risk-informed decisions
High performance
Reinforce values and culture,
promote clarity
Integrated Risk Appetite
What does “traditional Risk Appetite” look like…?
Board
Exec’s
Mgmt
Operations
Front line
The Board shows interest in Risk
Risk team works with the Board (sort-of)
Consultants provide x-industry knowledge
Not part of strategy setting + planning
Not used in operations – kept at Board level
Not driven or influenced by the front line, and not used for front-line decision-making
Regulatory compliance (esp. financial) Doesn’t help us take the
right risks, and manage the risks that need managing
Risk Appetite Statements and, maybe, Key Risk Indicators
How can we approach Risk Appetite Statements differently…?
Board
Exec’s
Mgmt
Operations
Front line
Maintain Board interest in Risk
Keep working with the Board
Consultants provide x-industry knowledge
Make it a “business initiative” with Exec’s
Agree it with operations and embed it into BAU
Drive it with your front line and support teams
To keep: To introduce:
Focus on agile critical thinking, to take and manage risk in line with our culture and plans
Regulatory compliance (esp. financial)
Front line appetite reviews
Aggregate
Review &Advise
Make sure this is aligned with what your Exec’s and Board THINK is the case…
Integrated Risk Appetite = alignment of Operations, Mgmt, Execs + the Board
Work with operations, discuss their appetite for risk + work out
how to help them succeed…
De-biased critical thinking and good risk-
informed decisions
Reinforce values and culture,
promote clarity
Gain commitment on Risk Appetite
from Exec’sTalk with your
business
What’s our Business Plan?
What are our risks (+ & -)?
What’s our appetite for them?
Describe this appetite
Can we quantify appetite?
Collect & review with Management
Make risk-informed decisions, achieve high performance
What’s a way to introduce Integrated Risk Appetite …?
1. Review with your teams “what you do”. e.g. Policies & Procedures, aligning people’s goals, critical thinking with scenarios, quantifying risk…
2. Use risk appetite to establish clarity and cultural alignment
3. Risk-informed decisions, actions
& success
Principles:1. Keep it simple2. Connect people3. Honesty4. Measurement
Integrate Risk Appetite into what everyone does…
High
Med
Low
Risk Appetite diagram courtesy of Satarla
6 1
2
34
5
Let people write their own story
It takes a story with +veand –ve to create energy
Leaders mistakenly think they are already the change
Good intentions aren’t enough to create success
It comes down to what you think, feel and believe in
Influence leaders aren’t a panacea for success
This is fine – but you need good change management for it to “stick”…
Text support from:McKinsey: The irrational side of change management
Can Risk Appetite make a difference to the important risks for all industries…?
Integrated Risk Appetite training is available…
2 3
1
01 Discuss and clarify the value and benefits of using risk appetite.
Start with Why
02 Work through a pragmatic approach to integrating risk appetite into how your organisation works.
Work through it
03 Practice using tools and techniques to add immediate value to you and the people you work with.
Develop immediate value
