September 28 & 29, 2020 | Virtual
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- Enterprise risk appetite/statement
- Stakeholder risk appetites
- Level of reward expected from the project
- Personal biases
Can we further divide these factors into sub-categories?
Is a human factor. You have three basic types of behaviours related to risk: avoid, seek, neutral. You need the three inside an organization. You will find avoid on controllers for example, You will find seek on entrepeneurs of the owners of the company for example. You will find neutral in strategics for example. The people who works on leading the company will create the balance between them.
Risk appetite is the degree of uncertainty and an entity is willing to take in anticipation of a reward. Many factors can influence risk appetite: Organizational culture, history of risk-taking, competitors, financial stability and capabilities of the organization, market maturity, market position, organization's reputation, etc.
Basically its how much risk an entity is willing to take to achieve a benefit. Typically the greater the benefit the greater the tolerance for risk or the reverse - the greater the risk the greater the need for increased benefit.
Risk being defined as the combination of probability and impact of an event.
I do not believe that risk appetite is static - its subject to change as an entity's situation evolves. If one is on-the-ropes one may take greater risks as the reward may be be all-or-nothing. Alternatively if one is comfortable one may not go as far for an incremental improvement.
However, risk appetite is very subjective and in many cases sub conscientious. I don't know if it is entirely due to experience or if there is a hereditary or built-in predisposition. Children raised in similar circumstances, even same families, usually have different levels of risk appetite - from dare devils to over-cautious (timid).
But, when considering risk from a project perspective one has to get through the subjective preferences and try for objective. That's where process becomes critical - consider and weigh the factors.
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