Formulating an Initial Risk Appetite Statement

Boards and executive teams can improve decision making by defining which risks support the organization’s strategy, which should be avoided and which are acceptable within agreed limits. A well-developed risk appetite statement creates a shared benchmark for evaluating growth and value-creation opportunities with greater confidence and discipline. The goal is to align the board and leadership team around responsible risk taking that supports strategy and long-term value creation.

Key Takeaways:

• Start with historical risk-taking, strategy and the business model.
• Define acceptable on-strategy risks and undesirable off-strategy risks.
• Set strategic, financial and operating parameters for decision making.
• Use the statement as a benchmark for value-creation discussions, not a constraint.