Understanding and appropriately applying the concepts of risk tolerance and risk appetite is crucial for humanitarian organisations to ensure that they are operating within their ability to manage risk. Humanitarian action is taking place in inherently high-risk environments and humanitarian organisations are often under pressure to take on much of that risk through the way funding agreements are structured. Hence, it is particularly important that humanitarian actors have a solid understanding of how to manage those risks and try to ensure that risks are shared more appropriately between partners and donors.
On 8 September ICVA and PHAP organised the second webinar of the series Risk Management in Prctice focusing on the twin concepts of risk tolerance and risk appetite. An introductory briefing on these concepts were followed by a discussion with a panel of experts on the practical challenges in identifying risk appetite and tolerance for NGOs.
About Risk Appetite and Risk Tolerance:
For the next instalment in the ICVA series on risk management in the humanitarian space we will examine the concepts of risk tolerance and risk appetite. Risk appetite is the willingness or desire to take on risk. While this can (and should) vary between organisations, risk appetite in the humanitarian community is generally high due to the inherently high-risk contexts in which humanitarian operations take place. If risk appetite is the willingness to take on risk, risk tolerance is the ability to do so. Tolerance may vary depending on the individual risk areas faced by humanitarian organisations in their operations.
Defining and achieving an appropriate balance between risk appetite and tolerance are critical to ensure that an organisation is operating within its ability to manage risk. In the humanitarian sector, this challenge is evident in the prevalence of “zero tolerance” approaches to risk that are often present in partnership arrangements between donors and NGOs. Pressure on NGO partners can be high to accept levels of risk in funding agreements – risk levels that may be higher than the organisation’s ability to manage them well.
Ultimately, it is in the interest of all stakeholders to ensure that risk is shared appropriately between actors in the humanitarian system. However, effective risk sharing agreements can only be built when there’s a shared and solid understanding among partners and donors on concepts such as risk appetite and tolerance.
- ICVA briefing paper: Risk and Humanitarian Culture January 2020
- ICVA Call on Protecting humanitarian workers against COVID-19, May 2020
- ICVA’s 2020 Annual Conference “Protecting principled humanitarian action: an honest conversation on risk”, 19 March 2020
- ICVA’s briefing paper “Reinforce, Reinforce, Reinforce: Localisation in the COVID-19 Global Humanitarian Response” 30 March 2020
- United Nations Systems Chief Executives Board for Coordination "Guidelines on Risk Appetite Statements (Final)", CEB/2019/HLCM/26, 30 September 2019.
- Norweigian Refugee Council (NRC) "Toolkit for principled humanitarian action" 2020 (En, Fr, Ar)
- ICVA’s Risk Management resource page
- InterAction, Resources on NGO Risk Management
Senior Enterprise Risk Management Officer,
Director Enterprise Risk Management and Compliance,
World Vision International
Executive Director, PHAP
Head of Humanitarian Financing, ICVA