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As we’ve discussed in previous issues of Board Perspectives: Risk Oversight, there are three elements of a risk appetite state¬ment: risks that are acceptable or on-strategy, risks that are undesirable or off-strategy, and important strategic, financial and operational risk parameters. Taken together, the assertions included in each of these elements frame the organization’s risk appetite.
A risk appetite statement is a reminder to management and the board of directors of the core risk strategy arising from the strategy-setting process. A winning strategy exploits to a significant extent the areas in which the company excels relative to its competitors. Issue 54 of Board Perspectives: Risk Oversight addresses how a risk appetite statement should be used to influence an organization’s actions and decision-making and raises questions directors and executive management should consider in the boardroom.
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