Risk Appetite:
Risk appetite defines the level of risk that an organization is willing to accept in pursuit of its objectives. It serves as a benchmark for evaluating and prioritizing risk responses.
Prioritizing Risk Responses:
When determining how to address risks, the primary consideration should be whether the residual risk falls within the organization's risk appetite.
If a risk exceeds the appetite, it needs to be mitigated, transferred, or avoided. If it is within the appetite, it might be accepted.
Influence of Other Factors:
Residual Risk:Important but must be evaluated against the risk appetite to determine if it is acceptable.
Mitigation Cost:Relevant for decision-making but secondary to aligning with risk appetite.
Inherent Risk:Initial risk assessment before controls are applied, but prioritization is based on residual risk and risk appetite.
References:
The CRISC Review Manual highlights the role of risk appetite in guiding the prioritization of risk responses (CRISC Review Manual, Chapter 3: Risk Response and Mitigation, Section 3.2.1 Prioritizing Risk Responses).