Risk appetite and tolerance in Advanced Risk

  • Release version: Australia
  • Updated March 12, 2026
  • 1 minute to read

    • You can define a risk appetite and tolerance within your organization by using the Advanced Risk application. A risk appetite and tolerance enable your organization to define the boundaries for acceptable and unacceptable risks.

    Overview of a risk appetite

    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.

    Setting up a risk appetite and tolerance

    A risk administrator can configure and set up a risk appetite for your organization in the Advanced Risk application. For more information, see Risk appetite setup.