What constitutes 'risk appetite'?

Risk appetite refers to the amount and type of risk that an organization is willing to accept in pursuit of its objectives. It is a critical component of risk management strategy because it helps define the boundaries within which the organization operates. In essence, understanding risk appetite allows organizations to make informed decisions about taking on risks that could lead to opportunities or potential losses.

Organizations must balance their ambitions with their capacity to manage risks effectively. This involves considering not only financial implications but also operational capabilities and strategic goals. By clearly articulating risk appetite, organizations can align their risk-taking activities with their overall objectives and ensure that stakeholders understand the governance around these choices.