In the past, the term “Risk Appetite” was only used by academics. Since the financial and sovereign debt crisis of 2008-2011, however, we have been confronted with this term on a number of occasions. But what is the difference between “Risk Appetite” and “Risk Attitude”? There is often confusion about this and they are often used as synonyms. We should also be familiar with these terms in project risk management. This article will give you more clarity about this. Read on and find out.
Appetite Is a Desire That Comes From Within
What is the difference between “Risk Appetite” and “Risk Attitude”? “David Hillson (The Risk Doctor) deals with this legitimate question in this good YouTube video. Let’s get away from the terminology of risk. Appetite is an inner desire, a feeling that is difficult to measure and shows itself as hunger, hunger for food. How can appetite be quantified? High, medium, low, or I could gobble a horse, or even just a salad, which is a unit of measurement for appetite.
. . I could gobble a horse!
So Appetite is something that comes from within. Attitude is something else. This is about positioning. You have the freedom to choose in which direction you position yourself.
We Are Not at the Mercy of Our Appetite
David Hillson gave a good example: After a long flight to Australia, he led a seminar right in the afternoon. Before that, the host invited him to lunch in a fine restaurant. David had a big appetite. Now a delicious meal from the long menu, accompanied by a good glass of wine! But then the thought came to him: “If I now enjoy a big menu and drink wine with it, so if I satisfy my appetite, then I will probably have problems in the afternoon”. So David chose a salad and mineral water after all – and with that he had not given in to his natural appetite. So “appetite” is a inner desire, “attitude” is a choice, or how to position yourself.
“Appetite” is inner desire, “Attitude” is a selection
This means that we are not at the mercy of our appetite, but can control our behavior accordingly. If we now relate this to risks, then there are organizations that are hungry for risks but are not able to bear them. Therefore, they should be more careful and show a more “risk-averse” behavior regarding what the appetite actually demands. But there are also organizations that are not hungry for risks, do not have a big appetite and are not willing to do something completely different, for example to become more competitive. Here it would make sense to adopt a more “risk-seeking” behavior. From this follows: The behavior modifies the appetite. Organizations need to know their risk appetite and communicate accordingly and act according to the situation.
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