This is the last in my series on operationalising risk appetite and I am coming back into the mainstream with the use of risk criteria and the risk matrix.
I wrote a blog a couple of years ago called “Escaping the Matrix”. In it I mentioned there are many, many risk practitioners who are calling for the scrapping of the risk matrix. While the risk matrix has its problems at least it has given us a decision support tool that facilitates great conversations that need to be had, and it can be used as the starting point of getting accurate with risk analysis.
In my Risk Leadership Group a few weeks ago we had session on risk tolerances and risk criteria. Some of the more practical problems for the development of risk criteria came up. Issues like criteria that indicates a Rare likelihood risk rating is less than once every three years. I would not want the potential for fatality or my organisation being blown apart every four+ years or so! I want rare to mean rare.
It prompted me to revisit the risk criteria template I use. The problem that was coming up way too often for my clients was insufficient granularity. Too many risks clustered in Medium and High. Not many Lows and, fortunately and understandably, very few Extreme risks. So I adjusted my likelihood criteria to make higher likelihood events higher risk and lower likelihood events lower risk. Essentially shifting appetite for risk.
While this is a simple act, it needs to be done to reflect the appetite for risk of the organisation. If done poorly, you will end up with an organisation seeing your risk criteria as fluffy and false which, as I pointed out in respect to your RAS, can damage your culture.
And so to my last words on operationalising risk in this series. The Board sets the risk appetite for the organisation. The Executive champion it. Management operationalise it. And Staff need to “live it”.
That’s right, it is ALL about culture.
For more on building the right culture in your organisation, check out this whitepaper on developing risk champions.
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