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Risk Tolerance
The ability and willingness of a decision-maker or owner group to assume unknowns (uncertainty) and make an informed decision when selecting amongst alternative courses of action and preparing for future events and future states.


Classification
Risk tolerance can be classed as:
  • Conservative
  • Moderate
  • Aggressive

Impacts
In asset management, risk tolerance impacts the owners criticality assessment of the following:
A reserve analyst's estimate of a client’s financial risk tolerance and the client’s own estimate of his or her financial risk tolerance are not necessarily consistent. These are typically only moderately correlated and this is further complicated by the fact that the owner is not always in possession of sufficient information to make a truly informed decision.
I. Care is oblivious to the extraordinary events that can totally wipe out his assets and upset the delicate order of things, such as force majeure, acts of God
Fig. I. Care is oblivious to the extraordinary events that can totally wipe out his assets and upset the delicate order of things, such as force majeure, acts of God (earthquakes, lightning storms, floods, fires, etc), lawsuits arising from slip-trip-and-fall injuries, environmental contamination, etc. He needs a risk register for his buildings so that he can get a line-of-sight on his risk management plan, prioritize work and keep a proper perspective on it all.

See also:


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