Risk Management: Understanding Risk Tolerance

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Psychology plays a critical role when it comes to managing project or organizational risk. One key concept is risk tolerance, which is an individual's or organization's predisposition toward taking risks.

Risk tolerance is highly subjective and deeply rooted in your perception of a situation's uncertainty and significance. Many factors impact this subjectivity, often categorized under the "triple strand" of influences—rational evaluation, inherent biases, and deep-seated emotions. Collectively, these elements shape your response to risks, swinging your attitude across a spectrum from risk avoidance to risk inclination.

Risk tolerance is malleable. By understanding our emotions and biases, we can actively manage our risk tolerance, gauging the appropriateness of a risk attitude in a given context and adapting our approach accordingly. For example, if you have had success with a certain cutting-edge technology in the past, you might tend to understate the risk of deploying it.

Risk tolerance should mirror an organization's culture and leadership style. A culture of innovation and entrepreneurship would feature high risk tolerance, while organizations emphasizing stability and steady growth would have a low risk tolerance. For example, using a cutting-edge technology might be considered high risk in the latter environment but absolutely run-of-the-mill in the former. Aligning risk tolerance with the overarching business culture is crucial to achieving desired objectives.

Risk tolerance influences the selection of risk response strategies in project management. A high risk tolerance may lead to accepting or exploiting more risks, whereas a low risk tolerance could focus on mitigating or avoiding risks. Project managers must navigate these uncertainties by seeking to align the attitudes of key stakeholders.

Understanding and actively managing risk tolerance is a complex but essential endeavor. It influences our decisions, shapes our interactions with uncertainties, and guides our approach to risk management on both an individual and organizational level. By acknowledging and integrating risk tolerance into our strategic plans, we can enhance our ability to navigate uncertainties and improve our chances of success.

Risk Register by ProjectBalm

Understanding and managing risk tolerance is much easier with an appropriate tool. This is one reason we created Risk Register by ProjectBalm.

Our goal was to automate best practice risk management techniques, and do so via an elegant, usable interface that works with you, and not against you. Risk Register will help you to identify, analyse, treat and monitor risks more easily and effectively than ever before.

If you are experienced at risk management, you will find in Risk Register a tool that works the way you want it to work. If you are new to risk management, our documentation and videos will take you through the whole risk management process, giving lots of useful examples.

Risk Register is fully compatible with risk management standards such as ISO 31000, and can also be used for governance, risk, and compliance (GRC) programs such as Sarbanes-Oxley and PCI. And, of course, Risk Register allows you to easily distinguish between opportunities and threats.

Over the last few years, we've grown to become the most popular risk management solution in the Jira marketplace and we are now an Atlassian Platinum Partner. Why not try out Risk Register by ProjectBalm for yourself?