Risk capacity
Risk capacity is the maximum exposure an organisation can bear given its resources, obligations and other constraints. It differs from risk appetite, which concerns willingness to take risk. Capacity may be constrained by liquidity, people, operations, regulation or the ability to continue essential services, and cannot always be reduced to a single loss figure.
Worked example
A charity could survive an unexpected loss of $200,000 without interrupting its essential services but chooses to limit a project’s potential loss to $50,000. The first estimate concerns capacity; the chosen limit expresses its more cautious appetite.
Common mistake
Using capacity and appetite interchangeably, or assuming a larger balance sheet removes operational and legal constraints.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBL | Supporting | September 2026–June 2027 |