Is Your Cautious Approach to Risk Appetite Stifling Your Business?
In business, without risk, there’s no reward. The challenge is striking a balance between embracing and mitigating risk – and it’s the board’s responsibility to achieve this equilibrium. On the one hand, you must address the uncertainties that threaten your ability to generate a profit; on the other, you must embrace risk because conscious risk-taking is fundamental to achieving economic growth.
There is only one big risk businesses should avoid at all costs: the risk of doing nothing. An organisation that takes zero risks deprives itself of the opportunity to try new things that can help it evolve and grow. Unfortunately, this is an all-too-common scenario because risk gets a bad rap. Rather than focusing on what could go right, our inherent negativity bias towards risk means we concentrate only on what can go wrong. For many businesses, this cautious approach to risk manifests itself as a fear of failure, making them risk-averse – and blinding them to the reality that failure creates opportunities for continuous learning and success.
Successful businesses understand that risk leads to learning, and learning leads to success. Having the courage to try new things and discover not only what works, but also what doesn’t, empowers you with invaluable information that helps make informed decisions. To be effective, this bold approach must be underpinned by a thorough understanding – and communication – of your risk appetite. Otherwise, you will attempt to absorb too much risk and do things that are detrimental to the survival of the business. This brings a ‘risk appetite statement’ into sharp focus for the board, who must be engaged with it and understand how it impacts the business.
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