Risk culture can be defined as the system of values and behaviors present throughout an organization that shape risk decisions. Risk culture influences the decisions of management and employees, even if they are not consciously weighing risks and benefits.
Essential parts of a successful risk culture:
- Leadership and commitment from the highest levels of the organization.
- Adherence to ethical principles and concern for all stakeholders.
- Organization-wide recognition of the need for effective risk management.
- Ready access to reliable information relating to risk at all levels.
- Active encouragement to share information when things go wrong so that the lessons can be learned.
- Application of risk management to all activities, even those considered to be complex, remote, or too hard to understand.
- Encouragement and reward for appropriate risk-taking as well as sanctions for reckless or negligent approaches.
- Ready access to support and resources for the development of risk management skills.
- Acceptance of multiple perspectives to challenge the approaches adopted.
- Alignment of risk culture with the organizational culture.
These can be regarded as the characteristics of a risk mature organization.
Risk culture is revealed in a number of ways. The risk
appetite is an expression of how much risk the organization is
prepared to accept or tolerate. This in turn is related to its risk
capacity, which reflects the ability to accept risk as a
consequence of the skills and resources at the organization’s disposal. More
than being just the totality of risk appetite, capacity, framework, and
processes, however, risk culture determines whether there is genuine buy-in at
all levels to address risks and opportunities that arise out of the uncertainty
of events.