5 Risk Tolerance Considerations for Project Managers

How Much Risk You Are Willing to Tolerate?

Every project manager deals with risk assessment and risk management. If done right, the project manager will ensure the overall project plan includes a risk management plan early in the project. The risk management plan is typically guided by the risk attitude of the project stakeholders, which is determined by their risk appetite, risk tolerance, and risk threshold.

The PMBOK Guide offers detailed definitions and guidance for each of these factors. For this discussion, we will use simplified descriptions:

Risk appetite is the level of risk that an organization is willing to accept to reach its goals and objectives. Risk appetite is typically culturally determined within the organization.

Risk tolerance tells you how sensitive the organization or the project stakeholders are to risks, their willingness to accept or avoid risk. Risk tolerance is variable, if not fluid, from person to person.

Risk threshold is the level of impact, typically a clear figure, beyond which the organization will no longer tolerate the risk. Risk threshold is a negotiated or determined quantified limit.

Project stakeholders are hardly ever asked what their individual tolerance level is. They agree on the risk management plan, but transfer their trust and expectations to the project manager. Stakeholders may understand the risk, but they may not fully grasp what acceptance of the risk means in practice.

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The Iterative Vendor Engagement Model

Whitepaper Preview: The Iterative Vendor Engagement Model

The following post is an excerpt from The Iterative Engagement Model: A Calculated Risk and a Whole Lot of Reward.

The traditional vendor engagement model is flawed.

Technology initiatives are only getting more and more complex, time consuming and costly. Consequently, the risks associated with technology investments continue to pile up.

Complexity increases the number of weak links, prolonged timelines introduce changes to landscape and priorities, and budgets are inevitably blown by vendors that offer unrealistically low costs that they cannot later sustain. While some organizations may feel that the problem is the result of selecting the wrong vendor, the challenge may in fact be the typical vendor contract.

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