Risk Appetite
DE: Risikobereitschaft
The degree of uncertainty an organization is willing to accept for a reward.
Detailed Explanation
Risk appetite is the degree of uncertainty an organization or individual is willing to accept in anticipation of a reward. It reflects the strategic-level comfort with risk and guides how much risk is acceptable in pursuit of objectives.
Risk appetite differs from risk tolerance (the measurable amount of variation an organization will accept) and risk threshold (the specific level at which a risk becomes unacceptable and triggers action). Risk appetite is the broadest concept: it sets the overall tone for risk-taking.
Understanding organizational risk appetite is essential for project managers because it determines how aggressively projects are selected and managed. A risk-averse organization will reject high-risk/high-reward projects. A risk-seeking organization may embrace them. The PM must align project risk management with the organization's appetite.
Key Points
- Strategic-level comfort with uncertainty
- Differs from risk tolerance (measurable variation) and threshold (trigger point)
- Guides project selection and risk management approach
- Varies by organization, industry, and context
- Risk-averse vs. risk-neutral vs. risk-seeking organizations
- PM must align project risk approach with organizational appetite
Practical Example
A startup (high risk appetite) approves a project with 40% probability of EUR 5M return and 60% chance of total loss. A government agency (low risk appetite) rejects the same opportunity and chooses a project with 95% probability of EUR 500K return. Both decisions are rational given their respective risk appetites.
Tips for Learning and Applying
Understand your organization's risk appetite before proposing projects
Document risk appetite in the project risk management plan
Align contingency reserves with the organization's risk appetite level
Re-assess risk appetite when organizational context changes
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