A few months ago, I published an article outlining how risk professionals can develop engaging presentations and workshops. In the article, I discuss how ERM presentations are more than just a report, but instead a way to engage key stakeholders.
Although a risk appetite workshop was used as an example in the previous article, a couple of brief conversations with a long-time blog subscriber told me this topic needs more attention.
Before diving into tips on conducting a successful risk appetite workshop, let’s make sure we’re clear on what different terms mean. In his book Prepare to Dare, Hans Læssøe (pgs. 40-41) provides easy-to-understand definitions. To quote…
- Risk appetite is the level on uncertainty you are willing to take, and hence will not bother to manage.
- Risk tolerance is the level of uncertainty you are prepared, if need be, to take in pursuit of the objectives defined.
- Risk capacity defines the level of uncertainty the organization is able to survive (downside) and deliver on (upside).
Many practitioners and thought leaders like Norman Marks express doubts as to the usefulness of risk appetite. As he explains in his book World Class Risk Management, it isn’t “…because it [risk appetite] is necessarily wrong in theory, but because the practice seems massively flawed.”
A study from Baringa Partners seems to prove this point when only around 15% of respondents strongly agreed that their organization’s risk appetite statements “… provide a clear link with the firm’s strategy” and “…a forward-looking view of risk.”
In the eBook Defining Risk Appetite, Jim DeLoach, Managing Director at Protiviti explains:
For the risk appetite statement to work, it must be actionable by management; that is, it must influence organizational behavior and have a meaningful impact on the company’s execution of its business strategy.
A workshop is a great way for bringing all of the necessary perspectives together for developing a forward-looking risk appetite that is useful for decision-making.
Strategic type conversations like this are not your ordinary meeting. As Chris Ertel and Lisa Kay Soloman explain in their book Moment of Impact:
At these critical moments, everyone will be looking to you – not for all the answers, but to help them unearth answers together.
In order to have a successful workshop that ultimately yields a risk appetite that is useful for decision-making, ERM professionals need to take a few things into consideration, including:
1. Be deliberate about the environment – ensure the room you will be using is conducive to dialogue and has the equipment and other infrastructure needed to prompt the in-depth discussion you will need. Consider seating arrangements and how you want participants to relate to each other. Make sure any refreshments match the tone of your workshop.
Also, make sure your location is set up to support virtual participants, which is especially important considering the surge of remote work we’ve seen in the last few years.
2. Be deliberate about invited participants – for a risk appetite workshop, it is possible to have too few or too many participants. Having too few will not provide the information you need while having too many could drown out important points. Consider the dynamics between different personalities in the room, especially among direct reports. One workshop I ran early in the year had one executive who was especially overpowering, thus muting valuable insights from those with specific knowledge on a topic.
3. Prepare key participants ahead of time – before you even step into the room for your workshop, you should speak to your CRO or other executive-level risk champion about what may come up during the conversation. Understanding and communicating potential “sticking points” in advance will give these individuals time to consider how best to handle this situation to ensure things keep moving. Not doing this important preparation could jeopardize the whole workshop, leading to resistance and distrust.
4. Set ground rules and make sure to enforce – when beginning your workshop, make sure to clearly communicate ground rules such as not talking over another participant, staying on-topic, or being mindful of how much time you take to make your point. Stay firm on these rules and don’t be afraid to gently call someone out if they’re not following them.
Also, don’t be afraid to interject a little humor to lighten things up. In a recent workshop I led for a client, I had a chair in the corner that I told everyone they would have to go it in for “time out” if they broke the rules. Of course, this was said with a smile, followed by, “please don’t make me send you to time out.” Fortunately for me, participants gladly policed and warned each other that they would need to sit in time out if they didn’t get back on task, helping the workshop go smoothly.
5. Avoid wordiness – since risk appetite is a topic that can easily confuse people, be careful about how much you include on any presentation slides. Including too much text will lead to participants tuning you out. It can also look defensive and research heavy. Only provide enough education to solicit the information you need. Also, don’t use ERM jargon to explain concepts, but instead use the language of the business to illustrate risk appetite and related concepts.
In the conversations with the blog subscriber, I explained how their presentation spent too much time describing what risk appetite is and why it is important. I advised they should not include their talking points in the presentation. To learn more, visit my previous article on ERM presentations.
6. Make it Measurable – risk appetite needs to use specific metrics – something measurable and not generic statements. Instead of saying “…ongoing widespread negative reporting in the media,” you may want to quantify this by saying “…ongoing widespread negative reporting that leads to a 10% loss in revenue” or “consistently 10 or more negative media reporting.” If you run into areas that seem like they are difficult to quantify, use Douglas Hubbard’s How to Measure Anything as a guide.
7. Communicate and follow through – in the days, weeks, and months following your workshop, make sure risk appetite is linked with your organization’s strategy development (forward-looking) and doesn’t just prioritize what appears on your risk register (rear-looking). For example, during any subsequent scenario planning, are risk(s) being compared against the appetite and tolerance to ensure the company is taking the proper amount of risks in pursuit of strategic objectives?
Understanding and articulating the level of risk your organization can and should take in pursuit of objectives can be a difficult task to say the least. It’s important to remember that just because a workshop was a success doesn’t mean the job is complete. Risk appetite and tolerance is not meant to be a static policy, but instead an ongoing tool that can and should adapt as conditions warrant.
Running a workshop can be challenging, but when done right, can solicit the information needed to develop an actionable risk appetite that is helpful for making the best decisions for ensuring the company’s success.
As Scott Berken explains in an article on running a good workshop:
At times you need to be a teacher, other times you’re a game show host facilitating what’s going on, and other times you are quietly out of the way helping people one-on-one.
In my experience facilitating workshops, I can attest that you will wear many different hats in this situation.
What has been your experience at running a risk appetite workshop? What were some lessons you learned to apply going forward?
The topic of risk appetite is a complex topic that takes organizations time to fully grasp and use to their advantage. I’m always interested in getting others’ perspective, especially on difficult topics like this. Leave a comment below or join the conversation on LinkedIn to share your thoughts.
If you and your organization are struggling to understand the proper level of risk(s) to take in pursuit of strategic objectives and feel an outside perspective may help get you unstuck, please don’t hesitate to reach out to me to discuss your situation today!
Featured image courtesy of Adrien Olichon via Unsplash.com