The Risk Appetite of an Organization

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- Risk appetite can be considered as a tendency of an individual or group of people towards risks.

- Risk tolerance is an acceptable variance; e.g. +5% to -5%. Tolerance is a limit.

- Risk threshold is a quantified limit beyond which your organization cannot go. Threshold is like an end point.

SWOT & Risk Management:

SWOT is a technique commonly used for strategic planning where the strengths, weaknesses, opportunities, and threats facing a group are compiled and analyzed to determine an appropriate course of action.

SWOT analysis, is a powerful tool which is used in Identify risks process of Project Risk Management for an organization to identify risks. The first step when performing a SWOT analysis is to define the business objectives. There are two variables to consider in SWOT analysis, those variables “internal” vs. “external” to an organization, and those which are “positive” or “negative” with respect to their impact on the project’s constraints.

When planning a project you really need both SWOT analysis and risk management. SWOT is a tool for assessing capabilities while risk management is a tool for assessing the likelihood of success. Each technique serves a very different purpose. SWOT is most useful at the beginning of a project to help you figure out what you’re doing and come up with an overall strategy. Threats and opportunities are considered events or conditions that are outside the project that will affect something inside the project. Those threats and opportunities can be from the organization itself or from outside the organization. In either case, the strengths of an organization, the positive aspects of the organization, may be able to neutralize or at least mitigate some of the threats to a project. For example, the more people trained in a crucial area of expertise, the less likely it is that the absence of a key person on a project will prevent that work from being done, because the other people trained in the area may be available to fill in for the absent person.

The weaknesses of an organization, however, are those factors within that organization which may aggravate risks, or negate opportunities that come by way of the project. So keeping track of the external threats and opportunities that a project may face vs. the internal strengths and weaknesses of the organization within which the project is done may help in understanding not just where the risks are, but how to create effective risk response strategies once those risks are identified.

References

- Bhansal, Saket. iZenbridge. 11 february 2014. 25 november 2015. .

- Keeling, Michael. SWOT vs. Risk Management. 15 February 2010. 3 December 2015.

- O’Rourke, Morgan. "Risk Appetite, Risk Tolerance, and Risk Threshold." The Risk Perspective,Risk and Insurance Management Society (2012): 3-6.

- Rowley, Jerome. 4squareviews. 29 july 2013. 3 December 2015.

- usmani, fahad. "PM Study Cycle." Planning risk ,Risk Appetite, Risk Tolerance, and Risk Threshold (2014): 50-55.

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