IRMSA – MRC SURVEY ON RISK APPETITE
DIRECTORS, RISK PROFESSIONALS & STAKEHOLDERS
Risk Appetite is an important area in which to develop a body of knowledge and support the development of practical risk management tools, and the Institute of Risk Management South Africa is pleased to support this survey (per web link below) as part of ongoing research that the risk management industry is conducting in South Africa.
As well as meeting the requirements imposed by corporate governance standards, organisations in all sectors are increasingly being asked by key stakeholders to express clearly the extent of their willingness to take risk in order to meet their strategic objectives. Hence Risk Appetite, Risk Tolerance and Risk Bearing Capacity are core considerations in any risk management approach.
However, there is still considerable debate over the exact meaning of Risk Appetite, the way in which an organisation should develop a Risk Appetite statement and how the concept should be applied. Whether it is a matter of setting, monitoring or overseeing Risk Appetite, this is a subject that has proved to be somewhat elusive - it means many different things to many different people. Marsh Risk Consulting (MRC) wishes to contribute to the strengthening and optimising of risk management capacity for organisations operating in our markets. To this end we have compiled this survey which we would appreciate you taking the time to consider and complete.
The questions in the survey address the calculation of Risk Appetite and related metrics, the governance of Risk Appetite and the strategic implementation of Risk Appetite in the business. The role of the board (or suitable alternative) in determining and managing the Risk Appetite program is also explored.
The IRMSA & Marsh Risk Consulting Risk Appetite Survey
MRC will provide all participants & their organisations with a free Risk Bearing Capacity calculation from said organisations’ last three years of audited financial statements.
The benefits to the participants will arise from the benchmarking and comparisons against industry peers on the primary risk bearing capacity calculations performed by MRC, and later on from targeted solutions we can provide based on the risk insights gained. These will be contained in a brief report setting out the key observations.
One of the purposes of the survey report is to begin to provide a common vocabulary for people who wish to discuss this subject both within their organisations, and also in comparing organisations.
Marsh takes care to safeguard confidential client information across its client portfolio, and will apply it’s professional standards in the same way to the responses to this survey. The responses are voluntary and confidential and will be compiled together and analysed as a group. The study report will not identify individuals or their organisations.
MRC seeks responses in respect of various elements of the Risk Appetite/Risk Tolerance Frameworks:
· RBC / Risk Appetite quantification
· CatRBC tolerance levels based on financial stress tests
· Risk management spend and resources
· Management & Audit/Risk Committee understanding of Risk Appetite
· Evaluation of risk exposures in relation to Risk Appetite
· Governance of Risk Appetite
Marsh, IRMSA and the CGF Research Institute will issue the web based survey to their respective memberships and corporate clients. Each JSE listed organisation will have access to a financial stress test data table applicable to that organisation, as well as certain sector financial performance averages and financial stress tests that have been calculated by MRC. Other corporates can request MRC to calculate the RBC based on their financial statements, but benchmarks can only be guaranteed for listed organisations.
MRC hopes to obtain multiple responses from each organisation, to establish the range of views that may exist amongst the various management and board (or suitable alternative) members. Once results have been analysed, respondees will receive the report on the survey results as well.
If you have any questions or concerns, please contact Volker von Widdern, Managing Director of Marsh Risk Consulting Africa (011) 0607407 or (082) 572 7893 or firstname.lastname@example.org. Alternately contact Nicola Loubser in the Marsh Knowledge Management office at (011) 0607119 or email@example.com with any queries.
The following definitions are presented in order to provide clarity as to the phrases utilised in the questionnaire. Some organisations may be familiar with alternative meanings but these definitions are intended to remove any potential misunderstanding 1.
Risk Bearing Capacity (RBC):
The level of unexpected and additional risk-based volatility of financial results that an organisation can absorb in the annual aggregate over a medium-term horizon without impacting on the financial structure or key strategies of the organisation 2.
Catastrophic Risk Bearing Capacity (CatRBC):
The level of unexpected and additional risk-based volatility that an organisation can absorb as a singular event, potentially resulting in material changes to the corporate and/or financial structures of the entity in order to survive 2.
Risk Appetite (RA):
The level of residual risk that an organisation is prepared or willing to accept without further mitigation action being put in place in order to achieve its business objectives, or the amount of risk an organisation is willing to accept in pursuit of value.
Risk Tolerances (RT):
Specific nominal or quantitative limits set in reference to the risk appetite and risk bearing capacity which will initiate specific protocol, escalation or action.
 The definitions are broadly in line with those contained in the internationally recognised risk management standard, ISO 31000, and the integrated risk management framework, COSO ERM.
2 King III uses the following definition for RBC: RBC is a monetary value which is used as a yardstick, measuring the maximum loss the company can endure, without exposing it to the point where its existence and survival is under threat, given an equivalent loss. It has no separate definition of CatRBC.