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TOPIC: Risk appetite

Risk appetite 3 months 1 day ago #23089

  • Mahdi Seify
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Hi
Anyone can please make it clear for me, how is it possible to define risk appetite before identifying risk?!!!
Looks risk management plan including risk appetite! how is it possible before exploring the nature of the risk?
thanks

Risk appetite 3 months 1 day ago #23090

  • Devin
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Risk appetite is a subjective exposure to risk that the key stakeholders are willing to accept to complete the project. This also drives contingency and funding limits. Risks are the individual risks that may affect a project, they are the known and unknown risks. For all intents and purposes these risk may not even occur.

Think of it this way. I'm planning my retirement and the first thing my advisor says is , "what kind of investor are you"? This means am I willing to lose money in the hopes of a big payoff or do I like to play it safe? We know the market will go up and down in the future (the known risks), but our risk appetite tells us how we plan for theses risks.

Risk planning is also iterative. Stakeholder analysis (iterative) may reveal that risk appetites change during a project. Also, we are also (iteratively) reviewing identified risks to get a sense of how risky our project is becoming. That is to say, that risks can increase (think present case with Corona Virus, unemployment, market forces, political tensions, international supply chain issues, etc.). Any real-world project that is currently under way needs a lot of iterative risk planning and review. I'm sure the risk profile on many of these projects was low and now is high (depending on the industry). With such high identified risks, stakeholder's risk appetite might change because the company is now risk-averse wanting to not waste money.

So long story short, stakeholder's provide a risk-reward (their risk appetite) generally early in the project and as individual risks are logged we are constantly monitoring the our risk-exposure against that standard. The risk appetite feeds into risk planning because we can then modify other parts of the project to be inline with that risk profile.

Hope this helps.
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Last edit: by Devin.

Risk appetite 2 months 4 weeks ago #23135

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Looks risk appetites as just defined before risk planning, should be overall and not that much detail.
Does it define in initiation phase? when define our stakeholder?
or planning when we are doing stakeholder analysis?
Last edit: by Mahdi Seify.

Risk appetite 2 months 4 weeks ago #23142

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I think generally the PMBOK (pg. 77 and following) show that risk appetites are EFFs. That is they just exist as an outflow of the personalities on the project. Risk identification is a tool when building the project charter, so risk identification begins early is iterative. It is also aligned with stakeholder expectations that we uncover as we interview and speak with stakeholders.

Throughout the project we are evaluating our risk appetite with our identified risks.

So to answer your question, yes, yes, yes and yes.
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