Risk appetite support

A company involved in the infrastructure management of part of London’s public transport system sought to define and formalise its risk appetite.  An external audit report had recognised that the company’s risk appetite was well-developed in the area of safety, but that it was less well-developed in most other business areas.  The Board felt uncomfortable that there was a distinct imbalance and wanted to consider the most appropriate approach to formulating risk appetite for areas other than safety.

Zurich commenced in August 2001 to provide the following:

• A detailed description of what risk appetite means both generically and specifically to the client
• To suggest risk appetite indicators at the functional level
• To establish the client’s risk appetite
• To define a framework for cascading this information through and across the business.

Zurich’s challenge was to clarify what was meant by risk appetite in the context of the client’s business, given the divergent levels of understanding of the concept within the executive (leadership team).  Zurich also had to consider how an understanding of risk appetite could be communicated throughout the organisation to enable better informed, more consistent decision making and more effective operation.

Other objectives were to enable:

• A more effective allocation of resources to deal with key issues
• Greater operational alignment and strategic consistency throughout the organisation
• A more comprehensive appreciation of all business risks and an understanding of the extent to which they should be tolerated in planning and implementation
• An improvement in the benefits brought by compliance with the recommendations of the Turnbull report on corporate governance.

Recommendations were well received by the executive committee and were submitted to the Board for approval.