Developing a winning strategy is difficult in the best of times. In the uncertain economic times that we are now experiencing, it is more difficult than ever for companies to determine which risks are worth taking. the first step in developing this capability is to define the company’s appetite for risk—the point where its willingness to take a risk and its ability to do so are balanced.
Too many companies rely on an intuitive sense of risk appetite, based on an assumed consensus across key stakeholders. Or they focus on a limited range of metrics that do not reflect the firm’s full risk base and potential performance volatility. Indeed, nearly 70 percent of board members say their companies have not properly defined their risk appetite, according to the National Association of Corporate Directors, whose research is supported by Oliver Wyman’s Global Risk Center.
