Risk Attitude: The CAPSTONE of Enterprise Risk Management

Individuals’ attitudes towards risk-taking or risk avoidance when faced with risks vary depending on many factors and determine the outcome of the decisions we make. Individual risk attitudes have a keystone effect on Enterprise Risk Management (ERM). Ignoring the impact of risk attitude, which holds the ERM structure together, can cause the entire structure to collapse. Therefore, risk attitudes need to be understood and properly managed. This study aims to produce recommendations taking into account the subjective aspect of individual risk attitudes that affect ERM. Accordingly, the factors affecting individual risk attitudes and senior management’s ERM-specific risk attitudes are analyzed together with the impact of these factors on ERM. In addition, the extent to which risk attitudes are taken into account in standards and frameworks has been the subject of the research. We have concluded that the standards and frameworks used in ERM either ignore individual risk attitudes completely or do not address them in the necessary depth. Emphasizing the importance of taking into account individual risk attitudes in the design or implementation of the ERM system, recommendations defined as CAPSTONE are presented.