Risk appetie and tolerance

[Noor_Mtl]

Hi every one,

Given the number of entities, how are using the Risk appetite and tolerance? are you defining them at the risk statement and autopopulated at the risk record? What is the goal of the risk appetite at the enity level?

Your input is very appreciated

[Community Alums]

Hi @Noor_Mtl ,

A risk appetite is the amount of risk that an organization is willing to take to achieve its strategic objectives.

A risk appetite can be defined in qualitative (numerical scale and ratings) and quantitative (absolute dollar) terms. For example, let's say that a lending institution provides a loan to some small scale industries. The lending institution has defined 5 percent as their target non-performing asset (NPA) for the current fiscal year.

Note: A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue.

Therefore, the risk appetite of the institution is 5 percent.

Benefits of using a risk appetite

The benefits of having a risk appetite for your organization are as follows:

• Provide better guidance to your first line of employees to implement risk management in specific areas of your business.
• Take risks within your organizational expectations and define and manage actions when there’s a breach.
• Assess the risk status that is based on the defined risk appetite and prioritize the risks that require attention.
• Assess all possible risks and define the boundaries for acceptable and unacceptable risks.
• Monitor your risk exposure and ensure that it’s consistent with your risk appetite. You can also track any unacceptable risks.
• Initiate a risk mitigation plan based on the risk appetite status.

Overview of risk tolerances

A risk tolerance is the standard deviation from the defined risk appetite that an organization can withstand without risking the organization's objectives and goals.

You can configure the risk appetite feature in the Advanced Risk application.

Follow the order of the tasks to configure the risk appetite feature in the Advanced Risk application.

• Configure a risk appetite and tolerance in Advanced Risk

  Set up the advanced risk assessment properties so that you can configure and customize the risk appetite and tolerance in the Advanced Risk application.

• Set up a risk appetite scale

  Set up a risk appetite scale in the Advanced Risk application to define the qualitative risk appetite within your organization.

• Change a risk appetite status

  Change the default name, color, and icon that appear for the risk appetite status in the Advanced Risk application.

[Community Alums]

Hi @Noor_Mtl ,