Risk tolerances

Abstract

Risk tolerance is an amount of risk that a project driven organization can withstand. It indicates how sensitive the organization is towards risks. High tolerance often means that organizations welcome high risks while low tolerance tells otherwise. Risk tolerance is often misunderstood or overlooked by project managers. The levels and perspectives of risk tolerance are dynamic throughout the life of the project. Risk tolerance has three different perspectives when you are involved in a project: firm, project manager, and stakeholder. The firm’s risk tolerance varies according to the firm’s financial stability and project diversification. A project manager’s risk tolerance is affected by job security and corporate culture. The stakeholder’s risk tolerance is influenced by project objective. The project success will depend on agreeable level of risk tolerance and support of compensation policies, corporate culture, performance reviews, and early risk management planning.