Simple risk management techniques deal with the impact of hazardous events, but this ignores the possibility of collateral effects of a bad outcome, such as for example becoming technically bankrupt.
For example, an organization should be "hungry for risk" if it has more than ample cover compared with its competitors and should therefore be able to gain greater returns in the market from high-risk ventures.
Precise (quantitative) measurement is not always possible and risk appetite will sometimes be defined by a broad statement of approach or qualitative categories.
An organization may have an appetite for some types of risk and be averse to others, depending on the context and the potential losses or gains.
In the UK the Financial Reporting Council says: "the Board determines the nature, and extent, of the significant risks the company is willing to embrace.
For example, where public safety is critical (e.g. operating a nuclear power station) appetite will tend to be low, while for an innovative project (e.g. early development on an innovative computer program) it may be very high, with the acceptance of short-term failure that could pave the way to longer-term success.
In other contexts, once upper management has set broad goals and expectations that integrate all interested parties' input and the organisation's obligations, decision-making is then delegated to authorising officials.
In literature, there are six main areas of risk appetite: result to be achieved Note 1: An objective can be strategic, tactical or operational.
Note 2: Objectives can relate to different disciplines (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organization-wide, project, product and process).