Question 2 (a) (10 Marks)
Explain the concepts of risk appetite and risk tolerance with examples.
Risk appetite and tolerance are commonly set-up by SPEND Ltd board and executive management, and they connected with the SPEND company’s strategy. Cited by Blunden and Thirlwell (2010:62) that risk appetite is the “amount and type of risk that an organisation is willing to take to achieve its strategic objectives [over a specified time horizon at a given level of confidence])”. Bansal (2015) took it directly from the PMBOK Guide (Fifth Edition) define risk appetite as “the degree of uncertainty an entity is willing to take on in anticipation of a reward.” Risk appetite can be expressed qualitatively and or quantitatively.
Meaning, the level of risk that SPEND Ltd board and executive management are willing to accept, before action is considered necessary to reduce it (Wikipedia, 2015). This represents a balance within SPEND Ltd, between the potential benefits of innovation and also the threats that change unavoidably brings. This is the high level subjective description of the degree of risk which is acceptable to SPEND Ltd or to stakeholders (Bansal, 2015). It provides …show more content…
This is an essential component in investing for SPEND Ltd Bansal (2015) took it directly from the PMBOK Guide (Fifth Edition) define it as “the degree, amount, or volume of risk that an organization or individual will withstand.” If SPEND Ltd did define their risk appetite and risk tolerance apparently that meaning it did not communicate or enforce the limits across their organization (Crickette, et al;