Risk Appetite Framework

The risk appetite framework is critical to the enterprise risk management program, as it establishes the foundational principles against with every strategic decision and risk evaluation should be measured. It represents one of the primary guardrails, along with strategy, to help ensure that everything from strategy to execution operates within acceptable risk levels. 

The ERM Advantage approach to developing strong risk appetite statements follows the same principles as all other components: focus on the language of the business, specifically business risk factors, to support leadership engagement, ownership, and usefulness as a management tool. 

Common Challenges

We routinely see common and recurring themes about why the risk appetite framework is often seen as little more than window-dressing. Something to give regulators, but not something that serves as a management tool, helping to support decision making. 

  • Risk appetite statements that are subjective, with no objective support
  • Grounded in risk language, often unfamiliar and unintuitive to the business
  • No clear way to translate appetite statements into management action

These tools solve those problems, transforming the risk appetite framework into a living, breathing management tool

The Risk Appetite bundle includes a series of templates that support the process of defining risk appetite, based on objective risk factors. These include:

  • Management worksheets
  • Aggregation and analysis template
  • Metric evaluation workbook 

These templates are the same as those demonstrated in the ERM Advantage training video on Developing a Strong Risk Appetite Framework.

Management Worksheets

This workbook includes twelve interactive worksheets covering eighteen of the common primary and secondar risk types, and over 160 risk factors that are aligned with defined risk appetite levels. Each worksheet contains a series of risk factors directly relevant to that risk type, represent both inherent risk and risk treatment factors. Leadership uses these worksheets to consider decisions that have been made for the business, each of which translates into an intended risk level. 

The included worksheets cover the following risk types:

  • Strategic
    • Business Model
    • Capital
    • Growth
    • Strategic Initiatives
    • Earnings
    • Corporate Governance
    • Community
  • Credit
  • Liquidity
  • Interest Rate
  • Price/Market
  •  Operational
    • Technology
    • Third Party
    • Information/Cyber Security
    • Human Capital
    • General
  • Compliance
  • Reputation

See detail

While some of the template worksheets provided are tailored to a typical financial services firm, these can all be easily modified to represent the risk factors within any industry.

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Worksheet Aggregation and Analysis Template

This worksheet is used to aggregate the responses from the leadership team, and determine where there is consensus, or division, on target and actual risk levels across the various business factors. This supports a robust discussion around differing views, which must be reconciled before ultimately concluding on final risk statements.

Metric Evaluation Template

As part of any update or refresh to the risk appetite framework, related reporting metrics should be evaluated to determine if they represent strong risk indicators across the organization’s risk categories. This worksheet provides a means to review key metrics in one place, along with related attribute information, to allow management to evaluate them and make determinations whether alternate metrics should be considered.

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Supporting Documents

The Risk Appetite pack also contains a number of supporting documents, including:

  • Procedures for completing templates
  • Suggested project plan
  • Sample workpaper from data gathered in the leadership workshops

Key Benefits of the ERM Advantage Risk Appetite framework template

  • Supports strong management engagement with factors based in the language of the business, and reflecting business decisions
  • Provides clear objective support to otherwise subject appetite statements
  • Identifies areas of differing leadership views, which supports open, honest dialog
  • Identifies areas where risk profiles are out of alignment with desired risk levels
  • All information is designed to ultimately be imported into a GRC tool to support risk automation

All template packs include several completed examples, procedures for using the templates, a basic project plan where appropriate, and an overview of the overall ERM Advantage framework for reference. Email support is available for questions, with options for live advisory services or support.  

Risk Appetite Framework Pack

Includes:

  • Management worksheets
  • Worksheet aggregation template
  • Workpaper sample (summarizing  all workshop data)
  • Metric evaluation template
  • Recommended project plan and procedures
  • Includes a 1-hour Zoom call to review the templates

Price: $ 3,500

Along with this Risk Appetite template pack we strongly recommend the related Metric Reporting Workbook. These two packs can be purchased in a bundle. For bundle options and pricing see Product Pricing.

To order this pack or if we can answer any questions, please use the Contact Us form.