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How Organizations Can Set Effective Risk-Tolerance and Appetite Limits

Will you get pulled over if you are driving at 68 mph? It depends. Are you in a school zone, where the speed limit is 20 mph, posted with a flashing yellow sign? Are you in a densely populated area, where you are not supposed to go over 40 mph?...

By Denise Tessier | Updated on November 29, 2012
Will you get pulled over if you are driving at 68 mph? It depends. Are you in a school zone, where the speed limit is 20 mph, posted with a flashing yellow sign? Are you in a densely populated area, where you are not supposed to go over 40 mph? Or are you on a highway, where the posted speed limit is 65 mph, but you know that your state police patrol is fairly lenient and won’t pursue cars passing under 75 mph?  

In and of itself, the fact that you are going 68 mph isn’t necessarily bad when considering the risk of a potential legal violation. Rather, the amount of risk in getting pulled over during your travels is entirely dependent on the external guidelines and tolerances for speeding set by local authorities under a set of particular circumstances or in a specific environment. It is a measurement of risk set against the community’s tolerance for the risk of speeding—the maximum speed the community is willing to accept on that particular road.  

A closely linked question, then, is how willing are you to continue to drive 68 mph when passing through different speed zones? Your risk appetite could be considered your willingness and desire to continue to move at 68 mph, knowing that you are in a zone where the posted limit is lower. Risk appetite is about the pursuit of risk. It may be greater than, less than or equal to risk tolerance, depending on the circumstances. However, both risk appetite and risk tolerance are intricately linked to performance over time.  

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