What is Risk Tolerance? Project Management in Under 5

[@Onlinepmcourses]

For those wondering, there is no consensus on a clear distinction between risk tolerance and risk appetite. Different sources have different definitions. I decided to present them as two names for the same concept, but I do accept that in some places, they do have different meanings. It's just that in others, the differences are different! However, more recently, I made a new video, What's the Difference: Risk Appetite - Risk Tolerance - Risk Capacity? - kzbin.info/www/bejne/aWnLYoWviJeXkJI

[@Onlinepmcourses]

If you want to go deep, here is a guidance paper on Risk Appetite and Tolerance from the Institute of Risk Management. This takes its context from the corporate world I refer to at 0:26 - www.theirm.org/media/7239/64355_riskapp_a4_web.pdf

[@blenzd]

thank you so much

[@Onlinepmcourses]

You're welcome You may also like an updated video: What's the Difference: Risk Appetite - Risk Tolerance - Risk Capacity? kzbin.info/www/bejne/aWnLYoWviJeXkJI

[@blenzd]

@@Onlinepmcourses i'll watch it rightaway!

[@andrewz4974]

To me, it makes no sense to have tolerance above risk appetite. If appetite is set by the board, who overrules that decision and decides to go above the appetite, even when the board said not to? Also, who takes the fall when you hit the capacity as a result of knowingly exceeding the appetite? I look at tolerance as low/low risks that don’t need trayment and which are acceptable. When you exceed your tolerance, you apply controls. Nonetheless you always stay within your appetite. When you exceed the appetite, it means that there is an incident or reevaluation of appetite is needed Open for discussion

[@Onlinepmcourses]

I think you have identified a case of common usage of words with similar meanings. Some people rank them in one sequence - others in another. There is no 'absolute right' answer. It's why we should never use terms like possible, plausible, probable, or likely to label the likelihood of risks. The meanings and distinctions of these words are highly subjective. When David Hilsom (the 'Risk Doctor') surveyed interpretations of those words by project professionals, in terms of percentages, he found each had such a widespread and the overlaps were so great as to render them effectively meaningless as labels for actual likelihood. The question which you raise that interests me most is 'who takes the fall when you hit the capacity as a result of knowingly exceeding the appetite?' This raises questions of governance and accountability (and also the balance of blame culture vs entrepreneurial culture). My answer is that lines of authority and identification of accountability need to be baked in from the outset, with the right level of oversight and checks. This is likely to be a culturally determined process - different in every organization and maybe tailored to each project.

[@Onlinepmcourses]

You may like an updated video: What's the Difference: Risk Appetite - Risk Tolerance - Risk Capacity? kzbin.info/www/bejne/aWnLYoWviJeXkJI

[@diyaniperera7891]

Hi May I know whether Risk utility also another name for risk tolerance??

[@Onlinepmcourses]

Diyani, I'll be honest... I've never come across the term risk utility before. So I am fairly confident it is not a Project Management term. What the web tells me is that it is a legal term in the US (and maybe elsewhere) so I'm not qualified to interpret it. It seems to relate to the level of risk and the reasonable cost of protecting against it. So, while there seems to be some overlap here with the PM usage of risk tolerance, I don't understand risk-utility well enough to give you a definitive answer.

[@diyaniperera7891]

Online PM Courses - Mike Clayton Thanks for well explanation. But in my studies I have came across. I’ll check that again.thanks once again