Sunday, December 4, 2011

What is Risk Threshold?

Risk Threshold means the amount of risk that is acceptable to an organization. Most organizations can accept minimal overruns in schedule or cost, or minor changes to the scope. For example, a company may have a policy that a risk that increases the project's cost by not more than 10% is acceptable, but anything more than 10% is not acceptable.

The customer, sponsor and other stakeholders all may have different perceptions and different risk thresholds. It is the project manager's responsibility to bring consensus on the acceptable threshold. Then, it forms the target against which the project team will analyze risks.

In general, negative risks or threats may be accepted by an organization if they are within tolerances and are in balance with the rewards that may be gained by taking the risks. For example, adopting a fast track schedule is a risk taken by a project manager to achieve the reward created by an earlier completion date.


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