Domain 2 Risk Treatment: Risk Response Options - Determining Risk Capacity and Acceptable Risk

A collection of flashcards covering key concepts in risk management, focusing on risk appetite, capacity, tolerance, and thresholds.

Risk Appetite

The amount and type of risk that an organization is willing to take on in order to achieve its objectives.

Risk Capacity

The maximum amount of risk that an organization could bear before it potentially goes out of business.

Risk Tolerance

The variation from the risk appetite; the additional risk that an organization is willing to accept beyond its set risk appetite.

Risk Thresholds

Quantitative limits assigned to different risk terms, typically expressed in monetary values.

Importance of Defining Risk Appetite

It guides decision making, project approaches, and helps align risk with organizational goals and objectives.

Examples of Risk Appetite Variance

Startups may have a high risk appetite, whereas banks typically maintain a low risk appetite due to regulatory requirements.

Factors Influencing Acceptable Risk Levels

Includes an organization's goals, objectives, industry regulations, compliance requirements, and contractual obligations.