CIMA P3 Syllabus A. Enterprise risk - Risk Attitudes and Risk awareness - Notes ^{3 / 3}

Risk Attitudes / Appetite

The overall risk strategy determines the overall approach to risk.

1. Risk Appetite

   This determines how risks will be managed.

   Some will be risk averse and some will be risk seekers, younger companies often need to be risk seekers and more established companies risk averse

2. Risk Capacity

   Risk capacity indicates how much risk the organisation can accept.

   The overall strategy of an organisation will therefore be affected by risk strategy, risk appetite and risk capacity.

Risk is a good thing because…

• Makes a business more competitive

  Prevents just “following the leader”

  Comes with rewards

ALARP

(As low as reasonable practicable)

• A risk is more acceptable when it is low (and less acceptable when it is high).

  Risks cannot be completely eliminated, so each risk is managed so as to be as low as is reasonably practicable because we can never say that a risk has a zero value.

  For example, It would be financially and operationally impracticable to completely eliminate health and safety risks

  This does not mean becoming complacent, so we maintain a number of controls that should reduce the probability of the risks materialising,

Risk awareness

describes the ability of an investor to recognise and measure the risk associated with a given investment.