Risk threshold and risk tolerance

Submitted by Antoine D on Tue, 07/17/2012 - 12:53

I am not sure to grasp the differences between risk tolerance and risk threshold.

Based on that link, http://pmtips.net/defining-risk-management-part-5-risk-tolerance/, risk tolerance is based on the level of impact that we can tolerate. In this case, what is the risk threshold?

Could someone explain me the difference between those two concepts? If possible with some concrete example. 

 

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saket_pmp

Tue, 07/17/2012 - 13:53

Risk thresholds help identify those risks for which specific responses are needed.
Explanation – You can think Risk thresholds like Risk Impact (low, moderate, high), Risk thresholds help identify those risks for which specific responses are needed. Risk thresholds is part of Risk Management Plan i.e. you documents Risk thresholds (impact) for those activities where you anticipate risk to happen.


Risk Tolerance. The degree, amount, or volume of risk that an organization or individual will withstand.
Example – The railway track has been build to run train at 150Km/H. However the tolerance is upto 175Km/H. This means until the train’s runs on the track with speed 175Km/H, you don’t have to worry about the track i.e. no risk response is needed to be planned.


Saket, PMP
 

sspawar

Wed, 07/18/2012 - 00:52

sn Tolerance   Threshold
1 Tolerance is a limit of capacity in terms of whole content ,
 quantity or amount from a definite point.		   Threshold is a point like end point,
verg or limiting end point or start point
       
2 it is generally expressed in terms of
plus and minus either side of a defined
point		   It is generally expressed as a mark or
a fixed point ahead of that or brfore of that there
is no more existance
  Now in the context of PMP or Risk management
3 Risk tolrance is a characterstic or
quality of a Risk bearer like , Risk
owener or any key stakeholder or
Project manager or sponsor or any group or organization.		   Risk threshold is a characterstic of  an  activity or an objective itself (Risk)like cost risk,
schedule risk, or any risk like fire
damage etc.
  Now example
4 Suppose I am contractor , and I can handle
50laborers for 50 days without
getting any
payment  from my clients against of my daily invoices and it amounts 10000 INR.
Here my capacity is as above, it  is my risk taking capacity, it is my risk tolerance.
While contractor X will not bear this much of investment, and he will come out of the competion against of me. He wants weekly payment. he cant tolerate this much.		   Now here this expenses of 50x50x
abc = 10000 INR is an activity or an objective of Risk, or
 it is a risk, and its trigger point, is
51x50xabc for me. It is risk threshold of this risk for me.
But my client is saying , no we can pay amount  after 60 days.
So this is new threshold point of that risk from that organization.
     and it is beyond my risk tolerance and i have to plan risk responses accordingly.
       

sspawar

Wed, 07/18/2012 - 11:22

Risk score -


Risk rating -


Risk threshold


Risk Impact


Risk probability -


Risk Tolerance


Risk high, medium and  low


can somebody define under one scenario (example)