Question

Exercise 3 Circle the statement(s) below that are plausible examples of risk appetite statements. A. The likelihood of achieving or exceeding the strategic plan revenue growth goals is 35%. B. The likelihood of losing 25% or more of baseline company value should be no greater than 30%. C. The likelihood of a ratings downgrade should be no greater than 10%. D. There is 5% likelihood of a ratings downgrade. E. The likelihood of achieving strategic plan goals for company value growth is 35%. Exercise 4 Circle the item(s) below that represent actions that management can take to directly change the level of enterprise risk exposure. A. Change decision making processes B. Revise the company's strategy C. Change risk management tactics, e.g., either decrease or increase the level of risk mitigation D. Enhance external risk disclosures Exercise 5 Circle the statement(s) below that are true. A. Key risks are quantified in terms of their impact to the baseline company value and other key metrics, for both individual risk scenarios as well as for combinations of multiple risk scenarios (i.e., enterprise B. ERM information is never used to increase the level of enterprise risk exposure, it is only used to C. In the value-based ERM approach, rating agency concerns are irrelevant, and the only focus is or D. Risk appetite should be defined before calculating enterprise risk exposure. risk exposure). decrease it, because it must not exceed risk appetite. shareholders and company value.

Answer 1

Exercixe 3

A risk appetite statement is the amount and type of risk that an organisation is willing to take in order to meet its strategic objectives – this includes reference to both the organisation's risk appetite as well as its risk tolerance.

A. The likelihood of achieving or exceeding the strategic plans revenue growth goal is 35 % - This is not a risk appetite statement as the amount and type of risk which the firm is willing to take is not given. On the other hand its just a statement of probability of achieving a particular goal of revenue percentage.

B. The second statement is a risk appetite statement as it clearly specifies the type of risk ie losing 25% or more of baseline company value and  amount ie. not losing more than 30% .

C.The third statement is a risk appetite statement as it specifies the type of risk " rating downgrade" and the amount " no greater than 10% " . It has both the elements of risk appetite statement and it clearly brings out the risk appetite of the person.

D. The fourth statement is not a risk appetite statement as it mere states a probability of the event is rating downgrade. There is no show of risk volume or type.