What is an acceptable risk level?
This article will be extremely short compared to previous ones.
The acceptable risk level is the amount of risk that the company is willing to accept when running its business.
This decision is mostly set by the board of directors who are in charge of the management of the company. The Board presents the level of risk they accept to the shareholders who can, in turn, accept it or not.
The level of acceptable risk can be set in two different ways.
The company can have a level of acceptable risk that is specific to each type of risk.
The other alternative is to have a blanket decision that states that the company cannot go, for any kind of risk, above a specific level.
When the second option offers the advantage of simplicity, the first one is more flexible and precise.
In my mind, a close synonym to the set-up of the acceptable risk levels, is the definition of the risk appetite of the company. Some might make a distinction between both, but, at the end of the day, they have the same purpose.
In the next step of my thoughts, we will see dig into the concept of risk analysis.
Co-Founder & Partner
After 13 years as CFO of The Bank of New York Mellon, I had several positions that allowed me to cover a wide range of topics: general management of entities, Risk and finance management, corporate taxes, supervision of IT and operations, accounting, budgeting, creation and restructuring of legal structures, regulatory reporting, acquisition of companies, operational statistics, and management accounting.
My strengths are in Finance and Risk Management