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A metaphore from Ramadan to explain this could be: You are hungry just before Iftar time and you see a table full of many kinds of food and you tell yourself that you are going to eat from each kind (appetite) ,but in practice there is a limit to what you can actually eat ( tolerance) otherwise you will stuff your stomach and end up in hospital ! Do you think this is a good way to explain the difference between the two terms for those who are not familiar with it ?
Risk Appetite in a simple term denotes the boundaries within which an organisation desires to consider it can factor the risk involved in any business decision.
Risk tolerance is occurs when there is a issue in which the enterprise has found the risk associated with it but the degree of risk is within the risk reward relationship.
Risk Appetite This is the high level subjective description of the degree of risk which is acceptable to an organization or to stakeholders. Risk Tolerancevery term ‘Risk Tolerance’ indicates the ability to measure since the definition included, “amount or volume of risk that an organization or individual will withstand.”Risk Thresholdmeasures along the level of uncertainty or the level of impact at which a stakeholder may have a specific interest. Below that risk threshold, the organization will accept the risk. Above that risk threshold, the organization will not tolerate the risk.” Risk Tolerance, we were primarily speaking about impact of risk in a measurable unit, however, Risk Threshold we are also including the “level of uncertainty.” This means that we are further quantifying the Risk Attitude.
I'd say:
Risk appetite is the sense of adventure
Risk tolerance is the fact of adventuring safety, some choose to be careful & realistic, others choose to be reckless
The term ‘risk appetite’ is often used for forward-looking view of risk acceptance while ‘risk tolerance’ is often taken as the amount of risk an organization has accepted in the past.
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