What's Your Risk Appetite?

One of the first, and most important, aspects of developing a risk management plan for any organization is to know how much risk it's overseers want to take on. While it's impossible to have no risk at all (an issue that will be covered in future entries), it is entirely possible to set a level of risk that an org is willing to face. This is called Risk Tolerance or a Risk Appetite.

Knowing a company's risk appetite is crucial to ensuring its uncertainties are managed properly. A company with a large risk appetite is one that will take on more risks as a part of its business, with the expectation of greater reward. A multinational corporation with a large appetite is one that will expand with aggression and attempt to enter new markets; there's an incredible amount of uncertainty to such business, but the payoff can be huge. By contrast, a company with a small risk appetite is going to be cautious when it comes to any form of uncertainty, and as a result will see diminished, but likely steadier, growth. Small businesses generally have a decreased risk appetite, especially for the first few years, since a few wrong steps can shut things down for good.

So where should churches be when it comes to risk appetite? Generally speaking, they should try to keep it petite. Given that churches are not trying to operate like a for-profit business, taking on large risks could prove hazardous for a church's health and standing. Doing such is also unfair to the numerous stakeholders each church has, from congregants to renters to those who receive support.

Of course, this doesn't mean a church should avoid risks at any cost, or be afraid of taking a larger one from time to time; there are countless stories of churches stepping outside their comfort zones and reaping great rewards from it. What's important is for the decision makers in the church to know how much risk they want to take on, and the best ways to deal with it. With a risk appetite established, the rest of the risk management process can flow much easier.

Risk thought: what's your church's risk appetite? Would other congregants agree with you?