Quote of the week
“Federal agencies tend to measure risk in terms of its effect on its mission and vision.”
— Federal CFO Insights report
A U.S. report by Deloitte looks at how federal agencies can build what it calls a “risk appetite framework” based on their risk tolerance. Some of its ideas should be of interest here where risk aversion is an endemic disease.
The U.S. notion is to link the risk appetite framework to the long-term strategic goals of the organization. The Treasury Board Risk Management Capability Model speaks to organizational risk readiness; the proposed U.S. framework speaks to the amount of risk the organization is prepared to take to meet its objectives as identified in its strategic plan.
The proposed U.S. framework has five categories on the scale: Risk Seeking; Risk Tolerant; Risk Neutral; Moderately Risk Averse; Risk Averse. Areas that are considered when using this scale include Risk-Taking vs. Reward and Risk Response Decision Criteria, to name two.
The report notes that once the framework is in place, staff members need tools that will help them set priorities related to the “established risk appetite.”
Leaders have an important role. They indicate in performance agreements that risk management based on this scale is a priority, and that they expect the scale to be used when making decisions, including budgeting ones.
The CFO also has a role as the overseer of this process and its results, and should take on the task of ensuring that colleagues are able to both help develop the risk appetite framework (based on their organization’s own risk aversion as identified using the model) and then following up on the broader approach.
For managers and departments, this could be a useful complement, perhaps, to the Treasury Board Risk Management Capability Model.