Differentiated Risk Appetite of an Innovative Company

Risk taking is an integral part of modern business as companies must make informed and rational decisions regarding the risks they are willing to take in pursuit of organisational goals and objectives. Risk appetite provides a basis for explaining which risk companies actively assume, and which risks they intentionally avoid. Innovative companies operate with high risks associated with the innovation process. Not only do new projects face high uncertainty at the development and production process stages, but also unpredictable customer reaction. It is crucial to manage risks in accordance with approved and justified principles, especially, because companies hardly specify their risk appetite. The various options of risk appetite determination include: setting a risk boundary on a probability and impact matrix; setting cost of capital measures; setting limits on credit rating changes; setting limits on profit and loss; setting a value-based measure; setting limits on a company's key performance indicators; setting qualitative statements. The application of existing methods for determining risk appetite is not sufficient for effective risk management. The developed indicator called differentiated risk appetite, will allow an innovative company to manage risks more flexibly. This indicator will enable the company to leverage the initiative of management and employees in the implementation of high-risk activities, thus, creating a reserve for making different decisions.