According to the PMBOKGuide (Project Management Body of Knowledge), specifically within the Project Risk Management knowledge area, it is critical to distinguish between the various terms related to an organization ' s attitude toward risk:
* Risk Appetite (Option D): This is defined as the degree of uncertainty an entity is willing to take on in anticipation of a reward. It reflects the organization ' s management philosophy and influences the culture and style of the organization. Essentially, it answers the question: " How much risk are we willing to hunt for or accept to achieve our goals? "
* Risk Tolerance (Option C): While often confused with appetite, risk tolerance is the specified amount of risk that an organization or individual is willing to settle for. It is often more measurable and acts as a
" buffer " around an objective. (Note: In newer PMI standards, " Tolerance " is frequently replaced by " Risk Thresholds " ).
* Risk Response (Option B): This refers to the specific actions or strategies (such as Avoid, Transfer, Mitigate, or Accept) that the project team decides to implement to address identified risks. It is an action, not an attitude or degree of uncertainty.
* Risk Management (Option A): This is the entire Knowledge Area and the systematic process of identifying, analyzing, and responding to project risk. It is the framework, not the specific measure of willingness to take risks.
In the PMI framework, understanding Risk Appetite is a prerequisite for the Plan Risk Management process, as it helps the project manager determine the stringency and type of risk management activities that will be appropriate for the performing organization.