Session 1D Risk Appetite and Risk Tolerance - Amazon Web Services

35 Pages·2012·0.69 MB·English

by  Ginny Brooks

Proudly presents…
Session 1D
Risk Appetite and Risk Tolerance −
What’s the Difference?
Rob Quail Diana Del Bel Belluz
Hydro One Risk Wise Inc.
AGENDA
• Why bother with risk appetite and risk tolerance?
• Terminology
• Articulating and applying risk criteria
• Getting over the common hurdles
Culture is the #1 ingredient for
effective risk management

What is Risk Management?
“The culture, processes and structures
that are directed towards realising
potential opportunities whilst managing
adverse effects.”
AS/NZS 4360: 2004
3
Copyright © 2011 Diana Del Bel Belluz
Without a risk appetite statement, each
individual manager must infer it
You’ll get wide-range of :
• interpretations of risk
criteria
• Leading to
corresponding (mis)
alignment with desired
risk appetite and risk
tolerance.
The blind men and the elephant
AGENDA
• Why bother with risk appetite and risk tolerance?
• Terminology
• Articulating and applying risk criteria
• Getting over the common hurdles
Definitions
HM Treasury AIRMIC ISO 31000 Risk Wise COSO RIMS
2006 2009 2009 2010 2012 2012
R
The amount of How much Amount and How much The amount The total exposed
i
s
risk that an risk a type of risk risk an of risk an amount that an
k
A organization is company that an organization organization organization
p
prepared to is willing to organization is willing to is willing to wishes to
p
e accept, take is prepared to take on to accept in undertake on the
t
i tolerate, or be pursue, retain ensure it has pursuit of basis of risk-return
t
e
exposed to at or take ample value. trade-offs for one
any point in opportunity to or more desired
time achieve its and expected
objectives. outcomes.
R
Not defined maximum Risk The level to Acceptable The amount of
i
s
threshold which a risk level of uncertainty an
k Criteria:
T before real must be variation to organization is
Terms of
o
financial managed to accept prepared to
l reference
e
r distress be regarding the accept in total or
a against which
n (risk considered pursuit of its more narrowly
the
c
bearing acceptable objectives. within a certain
e
significance

capacity) business unit, a
of a risk is
particular risk
evaluated
category or for a
specific initiative
Objectives of ERM at Hydro One
• Formal:
– Uniform processes, language, and tools for all risks
– Support corporate governance
– Strengthen management practices in a
demonstrable manner
• Informal:
– Provide solutions to problems
– Provoke useful conversations, increase
understanding
– Build comfort with taking MORE risk
– Influence the management culture of the company
Risk Appetite?
Risk Capacity?
Risk Tolerance?
Risk Limits?
Risk Criteria?*
Clarity –
what do the terms mean at Hydro One?
• Risk Attitude: Hydro One’s general risk philosophy
that drives it to pursue, retain, take or turn away from
risk. (per ISO 31000)
• Risk Appetite: the specific expression of Risk Attitude
in the context of individual Strategic Objectives.
• Risk Tolerances: the set of impact criteria, used in
assessing risk magnitude, that reflect Hydro One’s risk
appetite. Risk Tolerances are the guidelines that
establish levels of acceptable and unacceptable
exposure from any risk.
• Risk Criteria: the set of metrics (standards, measures
or expectations) used to assess risk (e.g. Risk
Tolerances, Strength of Controls, Probability/likelihood,
Velocity, Resilience). (similar to ISO 31000)