Page 480 - COSO Guidance

8 | Risk Appetite — Critical to Success

INPUTS TO APPETITE AND THEIR APPLICATION: AN OVERVIEW

The diagram below illustrates the cycle of appetite, from strategy and objectives, and feedback through monitoring
mission and vision through the selection and execution of performance.

Figure 3. The Continuing Approach to Developing and Applying Appetite

Reviews INPUTS TO APPETITE
misssion
Monitors performance and vision
and revises appetite
or strategy, as needed Considers board
and management
perspectives
on appetite

Changing context of
the business, culture
Incorporates current
APPETITE strategic direction,
risk profile,
and culture
Sets tolerance,
measures, indicators
and triggers
Identifies and evaluates
alternate strategies

Establishes Chooses
business objectives preferred strategy
to enhance value

APPLICATION OF APPETITE

To apply appetite as depicted above, an organization 3 Articulating and communicating appetite to support

must adopt a structure for developing, articulating, and decision-making—Considers how an organization can
communicating appetite. We set out four broad phases: develop a clear, consistent articulation of appetite that
enhances the ability to make decisions, especially when
1 Inputs to appetite—Considers those inputs that shape boards and management may have differing views.

how appetite is applied.
4 Using appetite to enhance performance—Considers

2 Developing appetite to support strategy and how appetite is used in developing tolerance, measures,

objectives—Considers how an organization develops indicators, and triggers, and in monitoring performance
appetite in the context of its overall strategy and and using these in day-to-day practices.
incorporates appetite into the setting of objectives.

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