Risks are essential elements in project management. They are uncertain events that may influence the project both positively and negatively. Organizations and stakeholders are willing to accept risks at certain degrees but their risk attitude is influenced by several factors including risk tolerance.
Risk tolerance is the degree, volume or amount of risk that an organization can withstand. It indicates how sensitive organizations, stakeholders, and people are towards risks. High tolerance often means that organizations welcome high risks while tolerance tells otherwise.
This element in project management also describes the willingness of organization and people to avoid or accept risks. There are many factors that affect the tolerance for risk. For instance, if the project being handled is critical, the organization is willing to take more risks but if it [project] is not that important, then the organization might not be willing to take a lot of risks. The other factors that affect it include the impact of risks on the probability of the organization and customer satisfaction.
Risk tolerance often shows the risk attitude in measurable units. For instance, if the allowable slippage is 5%, then this is the tolerance of the organization and stakeholders to take the risk.
This term is defined in the 5th edition of the PMBOK.