PMI Risk Management Professional Practice Exam

Which term refers to the maximum level of risk that an organization is willing to take in a project?

1. Risk threshold

2. Risk appetite

3. Risk tolerance

4. Risk exposure

The correct answer is: Risk threshold

The term that refers to the maximum level of risk that an organization is willing to take in a project is risk appetite. Risk appetite encompasses the overall amount of risk that an organization is prepared to accept in pursuit of its objectives, reflecting its willingness to take chances regarding uncertain outcomes. It provides a framework for decision-making and helps guide project choices in alignment with the organization’s strategic goals. While risk threshold and risk tolerance are related concepts, they serve slightly different purposes. Risk threshold generally refers to the specific point at which risk becomes unacceptable, often outlined as particular limits set for managing risk. Risk tolerance pertains to the acceptable level of variation or risk in relation to specific objectives or metrics. Risk exposure refers to the extent to which an organization is exposed to risk, including the impact of potential losses but does not define the organization’s willingness to accept that risk. Understanding these distinctions clarifies why risk appetite is the concept that directly addresses the maximum level of risk an organization is willing to assume.