A Short Guide to Ethical Risk (Short Guides to Business Risk)
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Carlo Patetta Rotta. Nigel W. Home Contact us Help Free delivery worldwide. Free delivery worldwide. Bestselling Series. Harry Potter.
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Popular Features. New Releases. A Short Guide to Operational Risk. Description There is a growing awareness across both public and private sectors, that the key to embedding an effective risk culture lies in raising the general education and understanding of risk at every level in the organization. This is exactly the purpose of David Tattam's book.
A Short Guide to Operational Risk provides you with a basic yet comprehensive overview of the nature of operational risk in organizations. It introduces operational risk as a component of enterprise wide risk management and takes the reader through the processes of identifying, assessing, quantifying and managing operational risk; explaining the practical aspects of how these steps can be applied to an organization using a range of management tools. The book is fully illustrated with graphs, tables and short examples, all designed to make a subject that is often poorly understood, comprehensible and engaging.
A Short Guide to Operational Risk is a book to be read and shared at all levels of the organization; it offers a common understanding and language of risk that will provide individual readers with the basis to develop risk management skills, appropriate to their role in the business. Product details Format Paperback pages Dimensions x x Other books in this series.
Add to basket. Part 2 A Methodology to Manage Operational Risk: Components of an operational risk management framework; Risk and control self assessment RCSA ; Key risk indicators; Risk incident recording and management; Compliance external and internal ; Risk treatment, improvement implementation and tracking; Reporting; Approaches to measuring operational risk. He is recognized internationally as a specialist in all facets of risk management and in particular, operational risk management. One interesting fact to notice about these inputs to risk appetite is that they are all internal, and they are not chosen by the individuals separately or the group acting together, they just are what they are.
The effect of individual risk propensity and corporate risk culture on risk appetite is subtle and invisible, it is essentially unmanaged, and it cannot be seen or measured externally. The resulting risk appetite therefore arises unconsciously and without the deliberate choice or intentional intervention of the individual or group concerned.
That is why we describe risk appetite as a tendency—because it is internal and unmanaged. As well as considering the inputs that affect risk appetite, we should also look at its outcomes. Just as we have no units to measure or describe physical appetite, the same is true for risk appetite. We describe our natural hunger for food or drink by translating the internal appetite into externally measurable terms, for example, a steak or a salad.
We also need an external proxy for risk appetite, something that can be seen and measured objectively. This role is taken by risk thresholds , which are external expressions of risk appetite. And just as risk appetite is defined in terms of the objectives associated with a specific situation, risk thresholds are expressed in the same way.
There should be a risk threshold set for each objective, reflecting the overall risk appetite in the situation.
Once we have defined risk thresholds for a given situation how much risk we are willing to take , we can then compare these with the overall risk capacity of the organization to bear risk, either in this specific situation or in aggregate. This will tell us whether our risk appetite can be fully satisfied or not. We might find that our appetite for risk leads us to set risk thresholds that exceed our capacity to take risk.
This could lead to a problem if left unmanaged, since we might end up taking on too much risk, exceeding our risk capacity.
Alternatively, our risk appetite may lead us to be too cautious, setting low risk thresholds which are well within our risk capacity, and which do not stretch or challenge the organization or make best use of its resources. The inputs and outcomes for risk appetite are shown in Exhibit 1. The problem is that risk appetite and all its inputs are invisible internal factors that are hard to influence directly.
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This makes it difficult to change things if our risk appetite is leading to inappropriate risk thresholds. As a result we need some other way to intervene and exercise control over unmanaged risk appetite. The important characteristic of risk attitude in this context is that it is chosen, and can therefore be modified and managed. And like risk appetite, risk attitude also has a range of inputs and outcomes, as illustrated in Exhibit 2.
It is common to speak about only a few specific risk attitudes, such as risk-averse, risk-seeking, risk-tolerant, or risk-neutral. But in fact, risk attitude exists on a continuous spectrum with an infinite number of possible positions. Faced with a given risky situation, a particular individual or group might exhibit a risk attitude anywhere on this spectrum. Turning to outputs from risk attitude, two things are important in the context of making decisions in risky and important situations.
The first is that our attitude to risk affects the degree of risk we are willing to take, as expressed in risk thresholds.
A Short Guide to Ethical Risk
Clearly, if we are comfortable with the perceived exposure to risk i. But the influence of risk attitude is much wider than simply affecting the chosen level for risk thresholds and tolerances; it also affects our risk actions. In fact, every action we take in relation to the perceived level of risk exposure is driven by our position on the risk attitude spectrum.
Each step in the risk process is affected by the risk attitude we adopt in the situation, including these:. Our risk actions modify the degree of risk exposure associated with the situation, leading to a revised perception of risk. As a result, we may wish to change our risk attitude, to give us the best chance of achieving our objectives in the light of the new risk challenge that we now face.
Therefore, there should be a cycle between the current level of risk exposure, our chosen risk attitude, and the risk actions we take. Changing risk attitude is a simple matter of making a different choice.
A short guide to ethical risk / Rotta Carlo Patetta
This starts with awareness of the existing risk attitude that we have initially chosen in a given situation, together with appreciation of the factors that have influenced that choice. Next we assess whether the risk attitude is helping us to achieve our goals or not. If the existing risk attitude is assessed as being appropriate, then we accept it and continue without change.
However, if a change in risk attitude is required, then we assert the need for change and take action to modify our chosen risk attitude. Comparing Exhibits 1 and 2 shows that risk appetite and risk attitude share common inputs the situation and its objectives and a common outcome the setting of risk thresholds.
Therefore, it is possible to merge the two exhibits into a single model, showing the relationship between risk appetite and risk attitude; we call this the RARA Model Exhibit 3. The RARA Model indicates how we can exercise control over setting risk thresholds to make sure that they are appropriate in the setting of the given situation, taking account of the influence of individual risk preferences as well as of organizational risk culture, and ensuring that the risk thresholds do not exceed our risk capacity.
We have already seen that the influences on risk appetite are internal and so cannot be easily modified or measured. However, risk attitude is a choice, and it is possible to choose a different risk attitude using the Six A's approach. As a result, the ability to choose a different risk attitude in a given situation provides a point of control in the RARA Model. We can now take a four-step approach to setting appropriate risk thresholds, as follows:. This simple four-step process provides us with a simple and practical way to set risk thresholds at a level that will enable us to take the right risks safely.
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Risk appetite matters. But risk appetite is an internal tendency, invisible and impossible to measure. Therefore, we need to use an external proxy to allow risk appetite to be expressed, and this is the role of risk thresholds. Unfortunately, the internal nature of risk appetite also means that if it is left unmanaged, it might result in the setting of inappropriate risk thresholds, leading us to take too much or too little risk.
We therefore need a way to intervene and modify risk thresholds that have been set intuitively using the gut-level risk appetite. Intervention is possible by choosing a suitable risk attitude that allows us to modify the initial risk thresholds, moderating the effect of unmanaged risk appetite.
Association of Insurance and Risk Managers. Research into the definition and application of the concept of risk appetite. British Standards Institution.