What is Risk Appetite?

The insurance industry uses the term “risk appetite” to describe the level of risk that an organization is willing to accept. An essential first step in managing corporate security, and resiliency, has to do with determining your firm’s risk appetite.

Risk appetite is defined as the amount of risk exposure that an organization is willing to accept as a normal course of business. Tolerance for risk exposure can vary greatly from one company to another and among different industry segments.

As a precursor to establishing an effective risk management program, a firm needs to determine its risk appetite. This can be done using a baseline analysis that accounts for a combination of threats, vulnerabilities, consequences, and readiness.

It’s interesting to note that often a company’s appetite for risk doesn’t match its actual exposure. In other words, companies are often unaware that their risk exposure is significantly greater than their actual tolerance for that risk.

Assessments, training, and exercises are all excellent ways to expose those gaps and establish focus points for adjusting your firm’s security posture to align with its risk appetite.