What is Risk Appetite?
Risk orientation is an important orientation which shapes leadership ability, Risk Appetite is your orientation to deal with uncertainty. Like strategy, risk is what we refer to uncertainty, but actually Risk is neither danger nor great opportunity. Risk is when these become uncertain, Uncertainty is what gives you arbitrage.
It represents a balance between the potential benefits of innovation and the threats that change inevitably brings. In a literal sense, defining your appetite means defining how "hungry" you are for risk. It would be useful to learn about your risk orientation which can help us for conscious and profitable risk-taking and help avoid failures. When we refer to risk, its actually an anticipated consequence or results. We mostly confuse the risk with loss, Risk exist when loss & gain both are probable.
Risk is an assessment, Risk is conscious call we make, that’s why risk play a great role in decision making, it drives judgement & decision making.
Risk is perceived by orientation given a context, Risk is a value part of leadership, but an uncertain value. The value can be anything from wealth to a new experience, to testing once capability.
One might not realize it, but our tolerance for risk affects the decisions we make every day on personal & professional level, your risk orientation would help in decision making if you know more about how to deal with it.
By defining its risk appetite, an organization can arrive at an appropriate balance between uncontrolled innovation and excessive caution. It can guide people on the level of risk permitted and encourage consistency of approach across an organisation.
Defined acceptable levels of risk also means that resources are not spent on further reducing risks that are already at an acceptable level.