Risk tolerance, appetite and capacity and the TARA model

In this lesson

1. 0:00 Risk appetite versus risk capacity
2. 0:45 Board responsibilities in setting risk appetite
3. 1:30 Risk aversion and risk seeking attitudes
4. 2:41 Identifying organisational risk appetite
5. 3:31 Building a risk register
6. 4:14 Priority matrix: probability and impact
7. 5:15 TARA analysis framework explained
8. 6:24 Avoid: high probability, high impact risks
9. 7:04 Accept: low probability, low impact risks
10. 7:35 Transfer: low probability, high impact risks
11. 8:43 Reduce: high probability, low impact risks
12. 9:22 Applying TARA with business context
13. 10:40 Risk interactions and diversification

About this lesson

This lesson covers a core framework used in risk management practice and examined across CIMA and ACCA qualifications, helping you move beyond simply identifying risks to making strategic decisions about how to handle them. Risk capacity is the maximum risk an organisation can absorb financially or operationally. Risk appetite, by contrast, is how much risk the organisation is willing to accept to achieve its objectives. The distinction matters because your risk management strategy should align with appetite, not capacity. You'll also explore risk attitudes—particularly risk aversion and risk seeking—and recognise that identifying an organisation's true risk appetite is complex, since individuals within it hold varying perspectives on risk. The TARA model provides a practical framework for responding to risk once you've assessed probability and impact. TARA stands for Transfer, Accept, Reduce, or Avoid. High probability, high impact risks typically warrant avoidance. Low probability, low impact risks are usually accepted as the cost of controls outweighs the benefit. Low probability, high impact risks are candidates for transfer—commonly through insurance, outsourcing, or disclaimers. High probability, low impact risks are best managed through internal controls and reduction strategies. However, TARA is advisory, not prescriptive. Your organisation's risk appetite and strategic objectives may justify departing from TARA's suggestions, particularly where potential returns justify higher-risk decisions.

Duration: 12m