Saturday, 22 July 2017

Risk appetite

What's the risk appetite? Risk is nothing but the chance of failure. If risk is 40%, that's the possibility of failure. If the risk of giving market credit is 1% of your revenue ( that's credit of 5% of revenue and 20% is the risk), then we also need to assess what is the risk of not giving the credit, in other words the loss of revenue by not giving credit. If the supply chain is driven by credit, the revenue loss will be very high compared to the credit loss. Such a simple calculation but why does organisations fail to understand this..  Here is a company which doesn't lose 0.01% of it's revenue in Market credit where as the Industry loss or expenditure in market credit is minimum 1% and the opportunity loss is more than 2%.

Credit loss is individual responsibility where as opportunity loss is no one's responsibility. Ease the individual responsibility or at least make everyone accountable for opportunity loss, someone will start easing individual responsibility!