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CMA Final · Strategic Performance Management and Business Valuation · Corporate Risk Management Performance

In enterprise risk management, a firm's 'risk appetite' is best described as:

Risk appetite is the amount and type of risk an organisation is willing to accept while pursuing its objectives. It is set by the board as a guide for decisions. It differs from residual risk, past losses or insurance cover.

  1. AThe amount and type of risk the organisation is willing to accept in pursuit of its objectivesCorrect
  2. BThe maximum loss that has actually occurred in the past five years
  3. CThe residual risk left after all controls have been applied
  4. DThe insurance cover purchased against operational losses

Explanation

Risk appetite is the broad level and type of risk an entity is prepared to take to achieve its objectives, set by the board. Residual risk is a different concept, being the risk remaining after controls. Historical losses and insurance cover do not define appetite.

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