Like many of you, I received a request from The Institute of Risk Management to comment on a consultation paper they prepared called “Risk Appetite and Risk Tolerance”. Great title.
It’s not my intention to opine on the paper here. I merely wish to confess that I often misuse these two terms much in the same way that I misuse “that” and “which” in a sentence. (Despite having the Strunk and White’s Elements of Style and reading and re-reading the definitions I just cannot retain the explanation when I write; I often have to look it up or just I accept that green squiggly lines of MS Word’s grammar checker are smarter than me.)
Just like the Elements of Style, whenever I get confused about tolerance and appetite I re-read “Ten Common Misconceptions About Risk Management”, which includes clear definitions, that John Fraser was kind enough to send me, but which I cannot publish on Riskczar.com.
Let me close by saying that I know there are many of you out there that must feel the same way about appetite and tolerance and I wanted you to know that you are not alone. I too suffer from this confusion. There. I said it. I hoped that if I came out of the proverbial risk management closet, many of you would think it was okay. There is no shame.
Please know that you have a friend.