RISK

APPETITE
Risk

■ To understand Risk Appetite it is important to know what a risk is.

■ Risk is inevitable, for every project there is always a slight possibility
of risk occurring
■ Project Risk Management, on the other hand, is the art and science of
identifying, analysing, and responding to risk throughout the life of a
project and in the best interests of meeting project objectives.
■ A Risk can be looked at as an uncertainty that can have a negative or
positive effect on meeting project objectives.
■ Negative Risks usually hinder the progress of the project whilst
Positive Risks can be looked at as opportunities.
Positive Risk

■ Positive Risk (Opportunity) Examples

 Receiving Many Signups for a new Product that it crashes the
website.
 Selling More Copies of widgets/apps than anticipated.
 Getting Swamped By press requests because the project is popular
Negative Risk

■ Negative Risk (Threats) Examples

 Market Risk – Will the Project be useful in the organization
 Financial Risk – Can the organization afford to undertake the project.
 Technology Risk – Is the Project Technically feasible.
 People Risk – Does the organization have people with the appropriate
skills.
 RISK ATTITUDES
• Organizations and individuals should strive to find a balance
between risks and opportunities.
• The idea of striving for balance suggests that different
organizations and people have different attitudes towards risk.

These Two Attitudes are:

1. Risk Appetite,
2. Risk Tolerance
 RISK APPETITE
• This is the degree of uncertainty an entity is willing to take on in anticipation
of a reward.
• It is also the quantity and nature of risk that organizations are willing to
handle as they evaluate the trade-offs between perfect security and
unlimited accessibility
• Therefore, Risk Appetite is the amount of Risk an organization is willing to
accept so as to carry out all the required tasks of the project.
RISK TOLERANCE
• This is the maximum acceptable deviation an
entity or organization is willing to accept on the
project or business objectives as the potential
impact.

• The project may be accepted if the risks are

within tolerances and are in balance with the
rewards that may be gained by taking the risks.
 RISK MANAGEMENT
PROCESSES
1. Planning Risk Management – involves deciding how to approach and plan risk management
activities for the project.
2. Identifying Risks – involves determining which risks are likely to affect a project and
documenting characteristics of each.
3. Performing Qualitative Risk Analysis – involves prioritizing risks based on their probability of
occurrence and impact.
4. Performing Quantitative Risk Analysis – involves numerically estimating the effects of risks on
project objectives.
5. Planning Risk Responses – involves taking steps to enhance opportunities and reduce threats to
meeting project objectives.
6. Controlling Risk – involves monitoring identified and residual risks, identifying new risks, carrying
out risk response plans, and evaluating the effectiveness of risk strategies throughout the project.
 RISK APPETITE
FRAMEWORK
The level of risk a company is prepared to accept to achieve its
strategic objectives
Measures
Enterprise Risk Tolerance • Capital Adequacy
(CaR)
• Earnings Volatility
(EaR)
• Credit Rating Target
• Embedded Value
Risk Appetite for Each Risk • Risk Preference
Category • Franchise Value
Stakeholders
• Regulators
• Rating
Agencies
• Debt Holders
Risk Limit • Suppliers
• Investors
 RISK MANAGEMENT PLAN
The risk management plan documents the procedures for managing risk
throughout the project.
Contingency Plans are predefined actions that the project team will take if an identified
risk event occurs.

Fallback Plans are developed for risks that have a high impact on meeting project
objectives and are put into effect if attempts to reduce the risk do not work.

Contingency Reserves also known as Contingency allowances are funds included in

the cost baseline that can be used to mitigate cost or schedule overruns if known risks
occur.

Management Reserves are funds held for unknown risks that are used for
management control purposes.