How’s Your AI Appetite?
During this month’s Enterprise Risk Management course, I was speaking with the attendees about risk appetite in business. It can really help an organization to explicitly determine the level of risk they are prepared to take to achieve their goals, and to the level of risk they won’t take.
This is called Risk Appetite.
A great example is a startup. Investors may be prepared to risk a sum of money to get a product developed, but they’ll have a ceiling on how long it takes and how much is spent to get a minimum viable product to market. They’ll have a cutoff sum of money they are not prepared to risk.
To be successful, there needs to be an element of risk taken, but there also needs to be an upper limit to the risk. This can be in financial terms, but it can also be measured in every other way we measure risk – safety, environment, customer satisfaction, security, legal obligations, reputation, and so forth.
Think of it like lines in the sand. To get to our goal we must cross the first line, but the second line is stopping us from going too far.
Our appetite for embracing AI should be quantified too.
For example, a company might choose to trial AI agents for optimising routine and tedious workflows but will not allow AI for autonomous decision-making affecting customers. Of course, the risk appetite statement will vary dramatically between a conservative organisation and an innovation-focused one.
I thought it would be fun to include one prepared by AI:
“The organisation has a high appetite for AI-enabled productivity and innovation, a moderate appetite for AI-supported decision-making, and a low appetite for AI-driven decisions that could materially impact customers, employees, financial outcomes, regulatory obligations, or organisational reputation.”
That is a bit of a one size fits no-one definition, so take the time to define a risk appetite statement that reflects the risks your organization is willing and not willing to take. This is an activity requiring extensive consideration, to be drafted by the board or top management.
Do you know your appetite for risk?
The Author
With over 30 years’ experience, from engineering and manufacturing through to consulting, facilitation and speaking, Lauren’s passion and expertise is in helping leaders build businesses for the future.
She helps organisations become “future fit” through pragmatic application of risk management in strategic planning and management systems. Lauren is also passionate about developing future fit leaders through essential leadership skills.
Her book 10% Better – Taking Organisations from Ordinary to Excellence has been acclaimed as a practical and hugely helpful guide for business leaders.
