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Defining your risk appetite

Key message: How much is enough?

Have you ever gone to a restaurant as a child or teenager where they have a large appetising buffet set out in front of you? You are famished and all the food looks delicious. The variety of food is enormous and there seems to be an endless amount as well. Your appetite will surely be satisfied after this! So what happens next? Our first instincts is to grab the largest plate you can find, fill it to overflowing with as much food (quantity and type) as you can fit on it without it spilling it on the floor.

When you reach your table you start devouring or more truly demolishing the mountain of food only to find when you are about half way through you realised that your eyes were too big for your stomach. Much of the food is then wasted as well you holding your stomach praying that the uncomfortable over-eating pain will subside. In looking at this example would it not have been better to appreciate the difference between what we want and what we actually needed to satisfy our appetite.

So how does this apply to the topic of setting your risk appetite? The same principle applies in risk management as it does when setting your appetite for food. The first step is to define what we may think we want and separate from that what we know we actually need.

Take for example; the “zero harm” policy of many organisations. Talking to them I understand their ‘want’ – absolutely no injuries. As an aspiration I couldn’t agree more but; is it what the organisation or the staff actually need? I would contend that what is actually needed is a safe workplace.

A workplace where staff could come with the reasonable expectation that the major hazards have been removed and the risks linked to those hazards are under control or have been minimised as a result of implementing a variety of controls.

The lesson is simple; we should always be mindful that there will always be a certain level of risk in any task or activity within the workplace.

Individuals, supervisors and management within the organisation need to work together to find the best compromise between what is wanted and what is actually needed to render the workplace as safe as possible. For example if child based workplaces were made child proof (zero harm) then no one would be able to do anything and there would be little enjoyment for children who need a challenge to grow and understand. There is no silver bullet when it comes to defining the risk appetite.

Each context must be judged independently and then collectively to reach that level of risk that is acceptable. Know your limits (appetite) before you complete your risk assessments.

Note: the term risk in this article only refers to the downside

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