Successful risk management is directly tied to a company’s ability to gauge its risk appetite and work within its parameters.

The risk appetite serves as both a benchmark and a reminder of the company’s overall willingness to take risk. Senior management and the board use this critical tool to set the organizational tone from the top. They articulate how much risk the company is willing to take, in what areas, and for what sort of return. The risk appetite statement also describes the types and degree of risk a company specifically wants to take and avoid.