How should risks that fall outside of the risk appetite be handled?

Risks that fall outside of an organization’s risk appetite should be escalated for further analysis or the development of mitigation strategies. This is crucial because risk appetite defines the amount and type of risk that an organization is willing to pursue or retain in alignment with its objectives. When risks exceed this threshold, it indicates that they could potentially threaten the organization’s ability to achieve its goals or affect its sustainability.

By escalating these risks, the organization can conduct a thorough assessment to understand the implications and potential impact. This may involve identifying risk owners, gathering additional data, and evaluating different strategies to manage or mitigate the risks effectively. Developing mitigation strategies is essential not only for addressing the immediate risk but also for putting in place systems or controls to limit exposure in the future. This proactive approach helps ensure informed decision-making and enhances organizational resilience.

Effective communication of these risks to appropriate stakeholders can follow once they are analyzed, but the initial step involves ensuring they are handled with the seriousness warranted by their potential impact on the organization. In contrast, accepting, ignoring, or immediately communicating all identified risks without a structured process can lead to inadequate risk management and unnecessary crises.