The risk landscape is evolving at a rapid pace. Businesses face new and emerging risks like cybersecurity and climate change that are increasing year-over in both velocity and magnitude—fueled in part by dynamic digital transformation and a hyperconnected global economy. These, in addition to risks that are part of day-to-day business operations such as noncompliance, data integrity, fraud and labor unrest, shape the ever-challenging risk environment.
A company with a low-risk appetite is risk-averse. It is likely to opt for stability over volatility, potentially surrendering market growth in the process. The top-down decision to state a low-risk appetite may be for a variety of reasons—insufficient resources for the successful execution of a business objective, a fragile financial position or a shift in compliance to satisfy new government regulations.
Every decision bears risks. If a business accepts risk or incurs loss due to a risk event that exceeds the agreed-upon risk appetite and tolerance levels, then serious fiscal, legal and reputational consequences can occur. For this reason, risk appetite should be reevaluated and reconciled whenever changes occur to strategic initiatives or the business environment.