Risk response strategy is the approach that an organization takes to address the risks that it faces across its various functions, processes, and activities. Risk response strategy involves selecting and implementingthe appropriate risk response options, such as avoidance, mitigation, transfer, or acceptance, for each risk, based on the risk level, the risk appetite, and the cost-benefit analysis1.
The most important consideration for senior management when developing a risk response strategy is the risk appetite of the organization. Risk appetite is the amount and type of risk that an organization is willing to accept in order to achieve its objectives. Risk appetite reflects the organization’s risk attitude and its willingness to take on risk in specific scenarios. Risk appetite is usually expressed in a qualitative statement approved by the board of directors2.
Considering the risk appetite of the organization is essential for developing a risk response strategy, because it can help to:
Align the risk response strategy with the overall business strategy and vision, and ensure that the risk response options support the achievement of the organizational objectives
Balance the risk response strategy with the expected benefits and opportunities, and ensure that the risk response options do not eliminate or reduce the potential value or performance of the organization
Enhance the risk response strategy with the stakeholder expectations and requirements, and ensure that the risk response options meet the needs and interests of the customers, suppliers, partners, regulators, and other parties
Optimize the risk response strategy with the available resources and capabilities, and ensure that the risk response options are feasible and cost-effective for the organization34
The other options are not as important as the risk appetite of the organization for developing a risk response strategy, but rather some of the factors or outcomes of it. Cost of controls is the amount of resources and funds that are required to implement and maintain the risk response controls, such as policies, procedures, or technologies, that aim to prevent or reduce the negative effects of the risks. Cost of controls is a factor that can affect the selection and implementation of the risk response options, but it is not the primary consideration for developing the risk response strategy. Risk tolerance is the acceptable variation in the outcomes related to specific objectives or risks. Risk tolerance is a factor that can measure the risk analysis and guide the risk response, but it is not the primary consideration for developing the risk response strategy. Probability definition is the process of estimating the likelihood or frequency of the risk events, based on historical data, statistical analysis, expert judgment, or other methods. Probability definition is anoutcome of the risk analysis that can inform the risk response, but it is not the primary consideration for developing the risk response strategy. References =
Risk Response - ISACA
Risk Appetite vs. Risk Tolerance: What is the Difference? - ISACA
Risk Response Strategies: Types & Examples (+ Free Template)
Risk Response Strategy - ISACA
[CRISC Review Manual, 7th Edition]
