Question

Risk appetite is the quantity and nature of risk that organizations are willing to accept as they evaluate trade-offs between "perfect security" and unlimited accessibility. Often when a risk is examined in detail, the result or the risk appetite can result in a decision to expand their capacity to handle that risk in order to take advantage of the business opportunity, or it might result in a decision not to move forward with that opportunity. Consider risks that exist at a typical small business. Provide an example of determining the risk appetite of the small business to a specific risk. How would you determine what to examine, what data to use in that examination, and what the risk appetite is?

Respond to the following in a minimum of 175 words:

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Answer 1

A risk apatite is defined as the companies' intent to take risks in different situations. It can be of several strategies under which a company takes a risk such

• Maximization approach in which the people are ready to take high risk irrespective of the return.
• Maximax approach is the method where the company takes risks only when there is a maximum chance of high returns.
• Risk Seeking approach is when the company accepts high risk but only when there is a rational calculation about the risk.
• Risk Neutral approach is when the company takes risk only when it is for a good cause with a high risk-reward value.
• Risk Adverse is the approach when the company is negligent to take risks and henceforth creates secondary problems for the future.
• Minimax is the approach when the company takes minimum risk and is mostly due to the incapability of the people to take risks for the benefit of the company.
• Minimization is the approach if taking minimum risk at any cost.

For a small company, the major risk is sustainability i.e. the ability to overcome their challenges like low budget, less recognition, average workers and limited leisure in the office and still perform remarkably well and create their presence in the market by making smart decisions and undergoing risks.

In order to understand the risk apatite in such scenario is effective communication between the employees, balanced resource allocation based on requirements and prioritization of tasks.

To overcome the risks companies need to :

1. The companies need to have a clear conception of the goals of the company. As the goals will be clear the head of the company can determine the calculated risk that can be taken by the company.
2. The companies need to develop a risk apatite scale denoting the amount of risk the organization is capable of taking and analyze all the aspects of taking the risk.
3. The leaders of the organization must have a clear communication with the loads of respective teams in the organization to understand all the aspects of the risk and whether the company is ready to take risk or not.
4. The company must be capable of designing a tool to prioritize risks and potential risks must be immediately brought into consideration of the senior executives.

Using the prioritization tool the employees and easily know about the risks that need to be handled instantly. The information and data related to the risk can be brought into consideration of senior executives of the company with higher experience and risk apatite can be thoroughly analyzed.