Risk Tolerance

Risk Tolerance

Risk Tolerance Jonathan Poland

A risk is the possibility of an adverse event occurring, while a trigger is the root cause of that event. For example, if a company identifies a risk that bad weather could cause the business to close, the approach of a hurricane could be the trigger that causes that risk to materialize. Sometimes, risk triggers can be identified in advance as part of risk management efforts, but in other cases, the specific triggers for a risk may be unknown beforehand. For instance, an organization may be aware of the risk of damage to its reputation, but may not be able to predict exactly what could cause that risk to occur, such as a customer posting a viral video showing poor customer service.

Risk tolerance refers to the level of uncertainty or potential loss that an individual or organization is willing to accept. Risk management aims to maximize the potential reward for a given level of risk tolerance, rather than always trying to minimize risk. This is because taking calculated risks is often necessary in order to achieve business or personal goals.

High Risk Investor

A high risk investor who is willing to tolerate potential losses of up to 50% of their portfolio in order to maximize their potential gains.

Low Risk Investor

A low risk investor who will not tolerate any potential loss of capital is restricted to relatively safe investments such as insured savings accounts that have limited potential returns.

High Risk Startup

A startup company is run by individuals with a high tolerance for risk. Although the business may fail, it also has potential to provide unusually high returns to investors.

Mega Projects

A mega project such as a large bridge may have very low tolerance for risk due to its large budget and responsibility for public safety. Such a project requires intensive risk management processes to ensure that its low risk tolerance is met.

Professional Snowboarder

Most professional snowboarders have a high risk tolerance because it’s difficult to acquire superior snowboarding skills without taking any risks.

Learn More…

IT Governance Jonathan Poland

IT Governance

IT Governance refers to the way in which an organization’s executive leadership…

Needs Identification Jonathan Poland

Needs Identification

Needs identification is the process of discovering and understanding a customer’s needs,…

Target Market Jonathan Poland

Target Market

A target market is a specific group of consumers that a business…

Microtransactions Jonathan Poland

Microtransactions

Microtransactions is a large scale industry that is becoming a dominant business…

Customary Pricing Jonathan Poland

Customary Pricing

Customary pricing refers to the pricing practices that are considered typical or…

Strategic Partnership Jonathan Poland

Strategic Partnership

A strategic partnership is a relationship between two or more organizations that…

Product Category Jonathan Poland

Product Category

A product category is a classification of similar or related products or…

Administrative Burden Jonathan Poland

Administrative Burden

Administrative burden refers to the workload and effort required to comply with…

Decision Automation Jonathan Poland

Decision Automation

Decision automation refers to the use of technology to automate the process…

Jonathan Poland © 2023

Search the Database

Over 1,000 posts on topics ranging from strategy to operations, innovation to finance, technology to risk and much more…

Risk Mitigation Jonathan Poland

Risk Mitigation

Risk mitigation is the process of identifying, analyzing, and taking steps to…

Fair Competition Jonathan Poland

Fair Competition

Fair competition refers to competition between businesses that is open and equitable,…

Continuous Improvement Jonathan Poland

Continuous Improvement

Continuous improvement is a systematic approach to improving products, services, and processes…

Bias for Action Jonathan Poland

Bias for Action

Bias for action is a mindset or approach that emphasizes the importance…

Risk Evaluation Jonathan Poland

Risk Evaluation

Risk evaluation is the process of identifying and assessing the risks that…

Brand Analysis Jonathan Poland

Brand Analysis

Brand analysis is the process of systematically and thoroughly examining a brand…

Domain Knowledge Jonathan Poland

Domain Knowledge

Domain knowledge refers to a person’s understanding, ability, and information about a…

Growth Strategy Jonathan Poland

Growth Strategy

A growth strategy is a plan to increase or improve some KPI, like revenue, profit, subscribers, etc.

Brand Identity Jonathan Poland

Brand Identity

Brand identity refers to the overall image and perception that a company…