Risk appetite is the amount of risk an organization is willing to accept to achieve its objectives. When operating with a constrained budget, understanding the organization's risk appetite is crucial because:
It helps prioritize security investments based on the level of risk the organization is willing to tolerate.
High-impact, low-likelihood events may be deemed acceptable if they fall within the organization's risk appetite, allowing for budget allocation to other critical areas.
Properly understanding and defining risk appetite ensures that limited resources are used effectively to manage risks that align with the organization's strategic goals.
Reference:
CompTIA Security+ Study Guide
NIST Risk Management Framework (RMF) guidelines
ISO 31000, "Risk Management - Guidelines"