1.Define a single risk appetite taxonomy across the organizations, such that
everyone understands and reports risks in a common language. This
would help in board level comparative analyses across products,
processes, business lines and other organizational elements.
2. Break down organizational silos to create an integrated risk appetite
information repository. This would aid in the sharing of information
across the organization, increasing its capability to aggregate risk appetite
information and ensure that this information is representative of
every part of the organization.
3. Automate the risk management processes to ensure that all risk appetite
efforts are conducted in a timely manner and with sufficient rigor.
As an efficient risk appetite management program brings together reams of
information, automation helps in rationalizing efforts, thus reducing
cost.
4. Develop a strong risk appetite awareness program to supplement the risk
management process. This will help build a risk culture within the
organization.
A risk appetite management program with the above characteristics would be
capable of catering to the risk intelligence needs of the board. In addition,
risk appetite management programs need to provide strong and flexible reporting
capabilities, as the board needs risk appetite-related information aggregated at
multiple levels of the organization. Strategic decisions are never very
simple; therefore, the need to provide simple and clear risk appetite information
becomes paramount for quick decision making.
Executive dashboards are very powerful tools for visualization. The ability
to view risk appetite of data from multiple perspectives is also very important, since all decisions at the board level will involve more than one organizational
unit.
Though boards need to view aggregated information, there are many
occasions on which they will need to drill down further into the specific
details to gain a clearer understanding. Consequently, a risk appetite management
program is only as good as its capability to provide varied and intuitive
visualization of the risk information.
As we emerge from the financial crisis, risk appetite intelligence within
boardrooms will play a major role in deciding the fate of organizations.
Boards have the perspective necessary to leverage this risk appetite intelligence
to craft long-term risk appetite management strategies which, in turn, are critical
for sustainable and profitable growth. They have the power to ensure
that their organizations are not only protected against risks but are able
to thrive on risks. Therefore, boards must actively participate in and
collaborate on risk appetite management, realizing that risk appetite-related conversations in the boardrooms are here to stay.
Claudius Todor has been the president of learning solutions at
McGill. He has had a rich career in risk appetite management, and
has held several key operating roles at some of the largest global
organizations.
Most recently, prior to joining MetricStream, he served as senior vice
president and chief risk appetite officer at Xitech.
Comments