FORMING COMPANY’S RISK APPETITE

Abstract

Urgency of the research. Adoption of any managerial decision within the company happens in the presence of risks. Against this background, it is vital to determine whether the risk is acceptable is in the process of achieving the objectives. Target setting. From this perspective, it becomes increasingly relevant to develop proposals aimed at helping the companies to form and present risk management process and place of risk appetite in it. Actual scientific researches and issues analysis. Among scientists engaged in research of risk and risk management were F. Knight (2003), T. Coleman and B. Litterman (2012), D. Kahneman (2014), I. Blank (2005), V. Vitlinsky, P. Verchenko, A. Sigal, Ya. Nakonechny (2002), A. Carol (2008), T. DeMarco and T. Lister (2005). Risk appetite was closely studied by D. Tattam (2015), B. Hassani (2015), L. Rittenberg and F. Martens (2012). Uninvestigated parts of general matters defining. It becomes increasingly relevant to identify differences in clarification of the essence of capacity risk, risk appetite, and risk tolerance, as well as develop recommendations on how to determine them within the company’s risk management system. The research objective. Identifying the essence, relevance and place of risk capacity, risk appetite and risk tolerance formation according to specific stages of the company’s risk management process. The statement of basic materials. Risk appetite reflects the level of losses which the company is willing to accept in order achieve its strategic objectives. In contrast, risk tolerance is associated with acceptance of the outcome of specific identified risk events and is defined as readiness for certain risk event. The article also aims to examine the company’s risk management process, in the context of which the place of risk appetite determination, as well as procedure for adoption of decisions on risk appetite and risk tolerance determination are outlined. Conclusions. Breaching the risk tolerance threshold should serve as a red alert for the management. In such a case the risk position has to be reduced.