How can you develop an effective risk appetite statement for your business?

3 Determine your risk appetite level and range

The third step is to determine the level and range of risk appetite for each risk category and criterion. The level of risk appetite is the amount of risk that you are willing to take on average or in normal circumstances. The range of risk appetite is the minimum and maximum levels of risk that you are willing to accept under different scenarios or conditions. You can use a scale or a matrix to express your risk appetite level and range, such as low, moderate, high, or very high.

4 Validate and approve your risk appetite statement

The fourth step is to validate and approve your risk appetite statement with your senior management, board, and other key stakeholders. You should ensure that your risk appetite statement is consistent, realistic, and actionable, and that it reflects the views and interests of your stakeholders. You should also test your risk appetite statement against various scenarios and events, and check if it supports or conflicts with your objectives and strategies.

5 Communicate and implement your risk appetite statement

The fifth step is to communicate and implement your risk appetite statement across your business. You should use clear and simple language and visual aids to convey your risk appetite statement to your employees, customers, partners, regulators, and other stakeholders. You should also integrate your risk appetite statement into your policies, procedures, systems, and culture, and align it with your performance management, incentives, and reporting.

6 Monitor and review your risk appetite statement

The sixth step is to monitor and review your risk appetite statement on a regular basis. You should track and report on your risk performance and compliance with your risk appetite statement, and identify any gaps or deviations. You should also review and update your risk appetite statement as your objectives, context, or circumstances change, and as you learn from your experience and feedback. You should involve your stakeholders in the monitoring and review process, and communicate any changes or adjustments.