How to define risk appetite for qualitative risks : evidence from a comparison between the banking sector and a non-financial industry.

Details

Supervisors

Decaux, Loïc

Faculty

Louvain School of Management

Degree label

Master [120] en ingénieur de gestion

Abstract

Purpose - The purpose of this thesis is to investigate how to design and implement the risk appetite for qualitative risks. Design/methodology/Approach - This thesis uses four interviews that regroup people from different areas: banking sector, insurance organization and international thought leader in risk management. This allows different opinions and a global overview of the risk appetite horizon to formulate relevant recommendations. Main findings - This thesis finds there are difficulties for organizations to design risk appetite for qualitative objectives impacted by non-financial risks. It also finds that the link between risk appetite and decision-making is not clear for organizations, as well as the way to cascade it down the lower levels. However, this thesis proposes four relevant recommendations on how to do so. Research limitations/implications - One limitation to this thesis is the number of inter- views conducted. The current pandemic has not helped in doing so. Another limitation concerns the different mechanisms and processes to design the risk appetite within the analysed organiza- tions; this may be one strength but also limits comparability and findings. Practical implications - The results have implications both for organizations that do not yet have a risk appetite framework in place, for those currently in the implementation stage but also for those that have implemented it and look for a more effective process. It also has implications for boards of directors and executive management teams, who are good candidates to implement and review a risk appetite, but also for regulators and supervisors, as they point out more and more the necessity of having a clear view of the risk environment (and its corresponding capacity and thresholds). Originality/value - This thesis in one of the first to address the issue of risk appetite imple- mentation with specific regards to qualitative risks.