Which component of COSO Enterprise Risk Management focuses on defining risk appetite?

The component of COSO Enterprise Risk Management that focuses on defining risk appetite is Objective Setting. Defining risk appetite is a critical part of the objective-setting process because it involves establishing the types and levels of risk an organization is willing to accept in pursuit of its objectives. This process ensures that the organization aligns its resource allocation, risk management strategies, and overall business goals with an understanding of the risks involved.

In this context, risk appetite serves as a guiding framework for setting strategic, operational, and reporting objectives, allowing an organization to pursue its goals effectively while managing the risks that could affect its ability to achieve them. Therefore, incorporating a clear understanding of risk appetite during the objective-setting phase permits organizations to make informed decisions that align their risk tolerance with their strategic vision.