Risk Appetite is defined as the amount of risk that an organisation is prepared to accept, tolerate, or be exposed to at any point in time. The problem is, that organisations do not assess risk – individuals do, and individuals are notoriously fickle when it comes to making risk based decisions.
I saw an example of this the other day on the busy N.340 in southern Spain, which runs along the coast from Marbella to Cadiz. A family, consisting of Mum and Dad with 3 kids (one in a pushchair) were trying to cross the road at a roundabout to get to the beach. About 50 metres from where they were standing, with the pushchair dangerously poking out into the road, was a footbridge that had been provided to allow pedestrians to cross the road safely. But no, this family had decided to save the effort of walking 50 metres, going up, over and down the bridge, and another 50 metres on the other side. The N.340 is a busy two lane highway, and the traffic doesn’t slow down much at roundabouts, but the family had decided to take the risk of being run down rather than walking further than they needed to. Predictably, because of the traffic, it actually took them a lot longer to cross the road via the roundabout than it would have done by using the bridge.
So what does this say about risk appetite?
Firstly, the family didn’t make the decision about crossing the road, Dad did. The others were visibly concerned about what they were doing, and the eldest child looked terrified. Individuals have risk appetites, organisation’s don’t. Secondly, I doubt that Dad would have had the same appetite for risk in other circumstances with other threats. An individual’s appetite for risk changes dramatically depending on the threat and the circumstances, and not just the time.
Risk appetite exists, it’s just that any attempt to measure it at a point in time, for an organisation, and in a particular set up circumstances, tells us nothing beyond the state of mind of the individual making the decision – Dad was too lazy to cross the road by the bridge.