A futility, perversity and jeopardy critique of “risk appetite”

Abstract

Purpose Risk appetite is widely accepted as a guiding metaphor for strategic risk management, yet metaphors for complex practice are hard to critique. This paper aims to apply an analytical framework comprising three categories of flaw – futility, perversity and jeopardy – to critically explore the risk appetite metaphor. Taking stock of management literature emphasising the need for metaphor to give ideation to complex management challenges and activities and recognising the need for high-level metaphor within strategic risk management in particular, the authors propose a means to scrutinise the risk appetite metaphor and thereby illustrate its use for further management metaphors. Design/methodology/approach The authors apply a structured analytical perspective designed to scrutinise conceivably any purportedly progressive social measure. The three flaw categories are used to warn that organisational risk appetite specifications can be: futile vis-a-vis their goals, productive of perverse outcomes with respect to these goals and so misleading about the true potential for risk management as to jeopardise superior alternative use of risk management resource. These flaw categories are used to structure a critical review of the risk appetite metaphor, which moves towards identifying its most fundamental flaws. Findings Two closely interrelated antecedents to flaws discussed within the three flaw categories are proposed: first, false confidence in organisational risk assessment and, second, organisational blindness towards contributions of behavioural risk-taking to true organisational risk exposure. A theory of high (over-optimistic, excessive or inappropriate) risk-taking organisations explores flaws within the three flaw categories with reference to these antecedents under organisational-cultural circumstances where the risk appetite metaphor is most needed and yet most problematic. Originality/value The paper is highly original in its representation of risk management as an organisational practice reliant on metaphor and in proposing a structured means to challenge it as a dominant guiding metaphor where it has gained widespread uncritical acceptance. The discussion is also innovative in its representation of high risk-taking organisations as likely to harbour strong managerial motives, aptitudes and capacities for covert and illicit forms of risk-taking which, being subversive and sometimes reactionary towards risk appetite specifications, may cause particularly serious futility, perversity and jeopardy problems. To conclude, the theory and its implications are summarised for practitioner and educational use.

The Critical Risk Factors that Influence Production-oriented Projects in the United Arab Emirates: A ‘Best-worst Method’ (BWM) Analysis

“…A review of the extant literature suggests that there is no generally agreed definition of 'risk' (see Marshall et al 2018Marshall et al ,2019aMarshall et al ,2019bMarshall and Ojiako 2010. One obviously relevant complication in any attempt to define risk is that we cannot ignore that risk is typically viewed as…”

“…An appreciation of the nature of such risk during the initial stages of manufacturing is likely to significantly enhance the process of 'Risk identification' and 'Risk assessment', both which are critical to the notion of risk intelligence. For this reason, it is increasingly being accepted in the literature that organisations do need to go beyond traditionally articulated notions of risk management (Makridakis et al 2019;Marshall et al 2019b). Typically, the management of risk includes the process of 'identification', 'assessment', 'avoidance',…”

“…The critical risk factors that influence production-oriented projects in the United Arab Emirates: a 'best-worst method' (BWM) analysis 'migration' and 'monitoring' (see Lee et al 2013). Here, 'Risk identification' will focus on identifying sources of sources of risk with a view to developing an appreciation of their interrelatedness while 'Risk assessment' focuses on evaluation of risks that are more than likely to potentially have an impact on the organisation (see Lee et al 2013;Marshall et al 2019aMarshall et al , 2019bSingh et al 2020;Al-Mazrouie et al 2021). Competency in 'Risk identification' does however require those who manage risk to possess an element of knowledge that will foster their ability to engage in some form of threat scanning (Marshall et al 2019a).…”