What Is a Risk Appetite Statement?

risk appetite featured

Over the past few weeks, we’ve talked quite a bit about risk:

  • What it is.
  • How it applies to compliance.
  • How you can start to think about it as an aspect of your overall business strategy. 

In many of the cases we’ve discussed, we’ve referred to risk in terms of mitigation–how to close the gap between your security capabilities and potential threats in the wild. 

But what’s critical to understand about risk is that it is just as much about how much risk you want to take on as you want to remove. And, when discussing potential risks concerning business goals, you must consider your risk appetite statement. 

 

What Is Risk Appetite?

risk appetite

Put simply, risk appetite is how much risk your organization is willing to take on in light of business or other strategic goals. 

In financial sectors (another industry where risk is a key factor), risk appetite measures how many risky investments a company might make in light of business goals. The company might be willing to take risks with specific volumes of money, or certain thresholds of returns or risks of loss, so long as they contribute to business goals. 

Likewise, cybersecurity risk appetite is all about weighing risk and reward. On the one hand, cybersecurity threats can pose a severe problem for an organization. Intuitively, we may surmise that any organization interested in cybersecurity will always implement the highest and most restrictive set of security measures. 

But these security measures might provide significant issues for the business, such as:

  • Increased Costs: Your business might incur significant costs trying to chase the most robust and most advanced security measures. These solutions are often expensive, but regular updates and patches can cost even more. 
  • Restrictive Data Access: Modern IT infrastructure supports data-driven business, which means that data must be available for business purposes. While it’s true that limited access to data will stop potential security threats, it also renders that data harder to use, which means less effective business operations. 
  • External Communication and Collaboration: Many compliance standards prohibit the sharing of unsecured data outside the organization. While there are several ways to share information that has been secured, they can make it much more difficult to seamlessly include external stakeholders. 

These are just some places where your business would have to make decisions to balance the necessities of security, the drawbacks of some security measures, and optimizing business processes and procedures. This is where risk appetite comes in. 

Unlike a risk threshold, where the company places a hard cap on the risk it will take on, appetite is a statement of how the types of risk the company will take on, how much it will take on, and how these relate to overall business goals. 

What Is the Risk Appetite Statement?

Risk appetite isn’t something that your organization will implement ad hoc. It requires a relatively comprehensive, business-wide analysis of your company’s risk profile, business operations and how cybersecurity plays into both. 

That’s why many organizations will put together a risk appetite statement. This statement provides the perspective of the business related to its appetite, how it plans on controlling for these levels of risk, and what it will do if it exceeds risk thresholds. 

In general, most of your executives or senior management should have some sort of stake in the statement, either as advisors or contributors. On the technical side, this includes Chief Technical officers (CTOs), Chief Information Officers (CIOs), Chief Information Security Officers (CISOs), risk officers (if you have senior positions for risk management), and compliance officers. On the business side, you would want to include the executive board and involve third-party suppliers, business partners, or relevant shareholders. 

This statement is all about priorities, policies, and procedures. A risk appetite statement should include the following elements:

  • Definition of Risks: Part of understanding risk appetite is making an inventory of acceptable risks. What are the risks that your organization is actually concerned about? This could include cybersecurity risks around specific IT systems, mission-critical applications, data storage media, or systems that interface with or serve outside users. 
  • Definition of Business Strategy: The appetite statement should also include a clear statement on the business’s goals, including its mission and values, as they pertain to the question of cybersecurity and risk management. 
  • Capacity: How much risk can your organization feasibly take on? Aspects like regulations or compliance standards can constrict the capacity for risk, as can business concerns like company reputation. 
  • Mitigation Strategies: How does your organization plan to minimize or eliminate risk if needed? 
  • Ongoing Revision Plan: Risks and threats change over time. There should be a regular revision plan for the statement where stakeholders update policies, re-address procedures and rethink strategies if necessary. 
  • Definitions of Key Metrics: Your risk plan should have some metrics framework to ensure that what you are measuring actually measures system capabilities effectively. These metrics will serve as the major way by which you confirm that you don’t overshoot your risk appetite. 

This statement isn’t necessarily some official report provided to a regulatory agency… instead, it is an internal statement that can serve as a major part of your Governance, Risk, and Compliance infrastructure. 

Work with Lazarus Alliance to Streamline Your Risk Appetite

Measuring risk appetite isn’t something that all organizations can do, or at least readily do, without some help. Lazarus Alliance provides expert services that help our clients use risk to take in the big picture of their security and governance strategies. We use the Continuum GRC’s Risk Assessment and Management platform as a cloud-based risk maturity platform that can help operationalize assessments so that you can make big decisions on your risk appetite and business goals. 

 

Are You Ready to Take Control of Your Risk?

Call Lazarus Alliance at 1-888-896-7580 or fill in this form. 

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