Risk management is a dynamic domain that changes and evolves based on the requirements of the environment in which it operates. The risk appetite is an excellent example of how risk is managed in the financial sector. There is an understanding that every action a business takes has an element of risk. Businesses determine their risk appetite – the amount of risk they deem acceptable to take. This appetite is not static – it can be increased or decreased depending on circumstances.

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Gartner’s recent survey revealed that more than 57% of the board of directors surveyed were planning to increase the risk appetite of their respective organizations to varying degrees. The increase in risk appetite being such a common strategy shows how tough it is for businesses to manage risks right now. Many businesses increase their risk appetite because they think they can afford to take on higher risks to aim for a bigger reward, but this industry-wide increase in the risk appetite is not a positive sign. The real reason these businesses are increasing their risk appetite is simple; there are too many risks in the current business environment.

Risk teams across the country are anticipating tougher circumstances due to multiple factors affecting commerce globally. Businesses need to increase their risk appetites because the increased risks mean it is impossible to work with a small risk appetite. The recent supply chain issue is a sign of things to come; many other industries anticipate shortages and disruptions in 2022. Since the financial sector provides lending and payment services and acts as the backbone for most of these industries, it will be affected by all these changes as well.

There is a heightened need for better risk management practices and tools. Risk teams need to be able to assess risks dynamically to understand how close they are to hitting their risk appetite tolerance levels in real-time. This requirement will necessitate the existence of real-time metrics across the organization.

There is a heightened need for better risk management practices and tools. Risk teams need to be able to assess risks dynamically to understand how close they are to hitting their risk appetite tolerance levels in real-time. Click To Tweet

Metrics in Real-Time

Risk management platforms continuously monitor risks across the enterprise. The continuous monitoring means that the managers can associate metrics with various risks to provide a comprehensive picture of present risk levels and trends and projections of how risk measurements will evolve. These insights enable businesses to monitor not only risk levels but also all risk factors within the organization. A business can then develop a detailed risk appetite statement that is segmented into numerous risk categories, each with its own set of measurements.

Monitoring Risk Appetite in Real-Time

Additionally, risk management technology eliminates the dependency on periodic risk assessments. Due to the real-time tracking of all risk variables, enterprise risk levels may also be reviewed in real-time. This means that management has access to a risk appetite statement that details the business’s risk tolerance. Rather than dealing with a risk issue that has been generating problems throughout the month and was only exposed at the month’s conclusion, organizations can address new risk-related issues immediately. This lessens the risk’s impact on the business and also makes it easier to mitigate the risk rapidly.

Management of Risk Proactively

Real-time risk appetite statements help businesses to minimize risks proactively. A real-time risk appetite enables a firm to expand while also strengthening its risk protection. Having real-time risk analytics enables the organization to pivot swiftly. Businesses grow more adaptable and adept at navigating the numerous dangers inherent in the environment.

Improved risk intelligence, of which risk appetite is a critical component, enables firms to grow in accordance with their strategic objectives by mitigating all known risks. The risk management software immediately highlights any significant changes in risk measures.

Identifying Opportunities

Banks benefit from real-time risk tracking because it enables them to understand how risks evolve in the market. This shows both challenges and possibilities, as banks may also determine which sectors are exhibiting the most potential growth. Businesses that monitor real-time risk measurements can identify these possibilities ahead of their competitors that rely exclusively on external sources of intelligence. A brief examination of the dynamic risk appetite statement reveals to management that the bank has fresh prospects to take on additional risk in exchange for a better payout.

Enterprise Risk Management Software

Are you interested in learning more about how a dynamic risk appetite statement might benefit your organization? Make an appointment with one of our risk specialists to see our enterprise risk management solution in action.