How do you define and communicate your SOP risk appetite?

2 Identify and evaluate your risks

The next step is to identify and evaluate the risks that are relevant to your SOPs. Risks are the events or circumstances that may prevent you from achieving your objectives or cause harm to your stakeholders. You can use various tools and methods to identify and assess your risks, such as brainstorming, surveys, interviews, SWOT analysis, risk registers, and risk matrices. You should consider the likelihood and impact of each risk, as well as the existing controls and mitigation strategies that you have in place.

3 Determine your risk appetite and tolerance

Once you have a clear picture of your objectives and risks, you can determine your risk appetite and tolerance. Your risk appetite is the overall amount of risk that you are willing to accept in pursuit of your objectives. Your risk tolerance is the specific level of variation or deviation that you can tolerate for each risk or category of risk. You can express your risk appetite and tolerance in qualitative or quantitative terms, such as high, medium, low, or using percentages, ranges, or thresholds. You should also consider the trade-offs and benefits of taking more or less risk, and how they align with your values and culture.

4 Communicate and document your risk appetite

The final step is to communicate and document your risk appetite and tolerance to your stakeholders, such as your team, management, customers, suppliers, regulators, and auditors. You should explain the rationale and implications of your risk appetite and tolerance, and how they guide your decision-making and behavior. You should also provide clear and consistent guidelines and expectations for your SOPs, and how they reflect and support your risk appetite and tolerance. You can use various formats and channels to communicate and document your risk appetite, such as statements, policies, procedures, reports, dashboards, and training.

5 Review and update your risk appetite

Your risk appetite and tolerance are not static. They may change over time as your objectives, context, and risks evolve. Therefore, you should review and update your risk appetite and tolerance regularly, and whenever there are significant changes in your internal or external environment. You should also monitor and evaluate your performance and compliance with your risk appetite and tolerance, and identify any gaps or issues that need to be addressed. By doing so, you can ensure that your risk appetite and tolerance remain relevant, realistic, and effective for your SOPs.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?