Risk Threshold

Risks are uncertainties that, if it happens, can have both positive and negative effect on the project objectives, schedule, cost, quality, and scope. One of the factors that influence risk and its management is the risk threshold.

The risk threshold is defined as a project management tool to measure the degree of uncertainty and the level of impact which a stakeholder or organization may have interest. As the name implies, it sets a certain value that the stakeholder or organization will accept a certain risk or not. Simply put, it is the amount of risk that organizations and stakeholders are willing to accept.

The risk threshold is considered as a further step in risk tolerance thus it quantifies the risk tolerance with a precise figure. This means that while risk tolerance has limits, the risk threshold gives a clear figure of the risk.

Determining the risk threshold requires interviews and meetings with the stakeholders. This is necessary to find out about what their risk appetites are. Based on their risk appetite, the project manager should analyze the risk tolerance first before calculating the threshold.

This term is defined in the 5th edition of the PMBOK.