Risk appetiteexplained

Guides decisions. Teams know when to escalate or proceed based on clear limits.

Aligns stakeholders. Boards and executives speak a common language about acceptable risk.

Supports transparency. Regulators and investors expect documented appetite statements, especially in finance and critical infrastructure.

1. Link to strategy Connect appetite to outcomes—growth, innovation, compliance, or liquidity.
2. Quantify when possible Use metrics (e.g., debt ratios, downtime targets) plus narrative guidance.
3. Cascade Translate enterprise appetite into functional limits and decision trees.

1. Track KRIs Define indicators that signal when appetite is being approached or breached.
2. Report breaches Require immediate escalation when tolerances are exceeded.
3. Review annually Reassess appetite during strategy refresh or when external conditions shift.
4. Educate teams Include appetite reminders in onboarding and planning workshops.

Risk appetite. The level of risk an organisation is willing to accept to achieve objectives.

Risk tolerance. The acceptable variation around appetite before escalation is required.

Risk capacity. The absolute maximum risk the organisation can bear before threatening viability.