PRINCE2 - Risk Tolerance & Risk Appetite

Risk tolerance looks at acceptable/unacceptable deviations from what is expected. Risk appetite looks at how much risk a company is willing to accept. There can still be deviations that are within a risk appetite.

Before determining what to do about risks, the Project Board and Project Manager must consider the amount of risk they are prepared to tolerate. This will vary according to the perceived importance of particular risks.

For example, the view of financial risks and how much the project team is prepared to put at risk will depend on a number of variables, such as budgets, the effect on other parts of the programme or organisation or additional risks such as political embarrassment. A project team maybe prepared to take comparatively large risks insome areas and none at all in others, such as risks to health and safety.

Risk tolerance can be related to other tolerance parameters; risk to completion within time scale and/or cost and to achieving product quality and project scope within the boundaries of the Business Case.Perceptions of risk tolerance have to be considered in detail to establish the optimum balance of a risk occurring against the costs and value for money of limiting that risk.

The organisation’s overall tolerance of exposure to risk must also be considered as well as a view of individual risks.