Nearly all C-level executives recognize risk management as an important ingredient in their organization’s overall business success. An overwhelming majority (86 percent) of survey respondents said that risk management considerations are to some degree factored into strategic planning decisions.
By the same token, companies will have difficulty developing a strategic plan without knowing their appetite for risk, and whether they are taking on too much risk for a given level of return or too little.
Companies may find they can afford to increase their risk appetite, assuming the business gains are high enough. But they won’t know if they don’t develop a framework of their appetite for risk. Indeed, a key question for executives is how to reach a common understanding of the company’s risk appetite, as part of the strategic planning process.
According to the survey results, less than a fifth (19 percent) of companies has developed a formal risk appetite statement. A further 22 percent say an appetite statement is being developed. About 40 percent say that a statement has been created, but not communicated across the organization. And 19 percent say it has not been developed at all. These statistics show that there has been some progress in creating risk appetite statements, but organizations need to try harder to develop these statements for decision-making.