Craps is a gambling game using dice. It became well-known to me from the Hollywood movies of mid last century when players gathered around a Craps table and rolled and cheered or expressed their frustration at loss after loss.
Before you start rolling out your Risk Appetite Statement (RAS), and devolving decision making to evolve your organisation, as I wrote last week, you need to consider the quality of the RAS you have to roll out.
If you have ever seen those Hollywood movies when they play Craps, many times you would have sensed the stress amongst the players who were playing for high stakes. Those with a higher appetite for risk taking. An appetite for higher risk taking is obvious. One of the biggest mistakes I have seen organisations make is to prepare a RAS that is risk averse in many areas where the organisation is obviously, to anyone who works there, anything but. They see the pressure applied to “win”, to take short cuts, to overlook due process to get the outcome sought. These types of statements are false, often written with fluffy or flowery words that are just spin.
Have a look at Figure 1. A fluffy and false RAS is at the bottom. Rolling that out will damage your culture because staff will smell a rat. More commonly I see convenient, bland statements that are pretty meaningless. They provide little guidance to decision makers other than: “Don’t do anything to harm our reputation” while setting unrealistic KPIs and pushing people hard to get them.What you need is a genuine statement that is compelling for staff, that will result in the agility I wrote about last week. Better, faster decision making within an agreed appetite for risk. Unfortunately when I work with Boards and Leadership teams, too often they ask for the genuine and compelling one and fight hard to deliver one of convenience written in bland business risk speak.
First you need to fight hard to get the best RAS you can get, then you can move to rolling out the gold! For tips on how to create a good RAS, here is the chapter on risk appetite from my 2021 book Risky Business: How Successful Organisations Embrace Uncertainty. Or check out the COSO paper on Risk Appetite from 2020 which also strongly pushes for genuine statements on the organisation’s objectives.
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