Project Management: Risk Appetite, Tolerance & Project Selection

This essay discusses the determination of risk appetite or tolerance within organizations, emphasizing its importance for investment decisions. It explains how businesses gauge investment decisions against risk appetite, also known as the total amount of risk an organization can take to meet strategic objectives. The essay details the use of internal and external information, such as historical data and industry data, to determine risk appetite. Furthermore, it explores how organizations decide which projects to accept or reject based on project acceptance criteria, including feasibility and risk assessment. The project selection criteria also includes consideration of the risk of the project. If it is determined that there is a high risk of project failure then the project is rejected.

Running head: PROJECT MANAGEMENT
Project Management
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Determination of Risk Appetite or Tolerance:
The risk appetite or tolerance is important for the businesses as the decision regarding
investment depends on these risk appetites (Flanders, 2018). Businesses mainly gauges the
investment related decisions against the risk appetite. This risk appetite is also known as the total
amount of risk that an organization can take for meeting the strategic objectives. The risk
tolerance is actually the maximum of risk which the organization can take. An organization can
easily determine the risk appetite by using some general information. Both of the internal and
external information can be used for determining the risk appetite. For the internal information
historical data of the organization can be utilized for the analysis purpose, so that proper business
decisions can be taken by the management of the business. For the external information, industry
data and industry experts can be used for the determination of the risk appetite (Zhang,
Paraskevas & Altinay, 2019). Regarding the industry data, auditor can utilize the industry data or
the risk appetite of other similar type of organizations so that risk appetite can be assessed
properly. Help from the industry experts can be also taken for assessment of the risk appetite.
Opinions can be taken from the end of risk experts regarding both formal and informal data so
that risk appetite can be measured properly.
How organization decides on what Projects it will Accept or Reject:
Whether an organization will be accepting a project or is going to reject the project is
completely depends on the project acceptance criteria of the organization. Depending on the
circumstances of the project acceptance criteria a project is either rejected or accepted (Li et al.,
2016). Here the acceptance criteria actually represents some defined and specific list of
conditions which needs to be satisfied for the project become acceptable. The acceptance criteria

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mainly defines important details before the execution regarding a project can be started. Also, the
feasibility of the project is checked in this case before accepting any type of projects. If the
project is not feasible with the real world situation then the project got rejected immediately.
Here the selection criteria for a project also includes consideration of the risk of the
project. If it is determined that there is a high risk of project failure then the project is rejected.

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References:
Flanders, K. (2018). AN APPETITE FOR RISK: Internal audit departments may need to
recalibrate to accept more risk. Internal Auditor, 75(2), 60-62.
Li, T., Zhang, X., Zhang, P., & Qi, Z. (2016, November). Organization and Management of Sci-
tech Project Acceptance Meetings. In 2016 5th International Conference on Energy and
Environmental Protection (ICEEP 2016). Atlantis Press.
Zhang, N., Paraskevas, A., & Altinay, L. (2019). Factors that shape a hotel company’s risk
appetite. International Journal of Hospitality Management, 77, 217-225.