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AORM | L2: Risk Appetite Statements and Tolerance Limits
Risk appetite is the foundation of any consistent framework. This Lesson reviews the best practices for structuring, cascading and communicating risk appetite statements. Based on years of practical experience, this Lesson presents cases, examples and suggestions to define sound risk appetite statements in firms.
Lesson 2.1: Risk Appetite Structure
• Definition of risk appetite
• Benefits of risk-taking
• The risk appetite funnel: risk appetite beyond tolerance for losses
• Communicating risk appetite
• Risk appetite and tolerance statements
Lesson 2.2: Risk Appetite & Framework consistency
• Structure of actionable risk appetite statements
• Risks to choose, to balance and to avoid
• Consistency with other Lessons of the framework
• Risk appetite and P/I matrix and scales
Lesson 2.3: Risk Appetite and reality checks
• In practice: bottom-up vs. top-down risk appetite definitions
• Risk appetite and reality checks
• Reputation risk appetite
• Decision-making and risk
• Excessive risk-taking
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