A risk appetite statement is a reminder to management and the board of directors about the core risk strategy rising from the strategy-setting process. A winning strategy emphasizes the areas in which the company excels in comparison to its competitors.

There are three elements that make up a risk appetite statement: risks that are acceptable or on-strategy, risks that are undesirable or off-strategy, and important strategic, financial and operational risk parameters. Together, these elements frame the organization’s risk appetite. In this issue of Board Perspectives: Risk Oversight, we address how a risk appetite statement should be used.