What action should be taken if a risk exceeds the organization’s risk appetite?

The appropriate action to take when a risk exceeds the organization’s risk appetite is to implement strategies to reduce or transfer the risk. This approach aligns with risk management best practices, which emphasize maintaining risks within acceptable levels defined by the organization's risk appetite.

When risks are identified that surpass this threshold, it’s crucial to assess and mitigate them to protect organizational objectives and assets. Reducing risk can involve various strategies, such as enhancing controls, improving processes, or adopting technologies that lower the likelihood or impact of the risk. Transferring risk, such as through insurance or outsourcing certain activities, allows the organization to share or shift the burden of the risk to another party.

In contrast, ignoring the risk can lead to exposure that could be detrimental to the organization. Simply accepting the risk without any management can be irresponsible when it exceeds capacity for loss. Increasing the organization’s risk appetite may also be ill-advised, as it could expose the organization to greater potential harm and contradict the fundamental principles of sound risk management.