The risk tolerance decision: where to start?
Risk is a multi-faceted concept and cannot be distilled into one singular measure. When coupled with the complex nature of a health system, the subject of investment risk tolerance can be daunting. To bring clarity to the process, Mercer’s Healthcare Strategic Research Team (SRT) developed the framework outlined in this paper. It is built upon Mercer's Comprehensive Analysis of Risk Exposure (CARE)* philosophy which takes a holistic view of how a system’s organizational risk factors influence its investment strategy. Once the connection is made, it is important to integrate those factors into the determination of investment risk tolerance.
The matrix defines risk tolerance as the intersection of ability and appetite to take risk, both of which are influenced by a combination of enterprise-specific factors and conventional inputs. It is intended to serve as a practical starting point for identifying risk capacity.
In this paper, we will describe the elements of this risk framework in further detail and examine how health systems can apply it to their unique needs and circumstances and determine their organization’s investment risk tolerance.