If you’re new to IT Audit or Risk Consulting, you’ve probably heard terms like Risk Appetite and Risk Tolerance a lot — sometimes even used interchangeably. Early in my career, I used to think they meant the same thing. They sound similar, but they’re not.

So, what is Risk Appetite?

In simple terms, Risk Appetite is the amount of risk an organization is willing to take on to achieve its goals. It’s like saying, “We’re okay with this much risk, if it helps us grow, innovate, or move faster.”

It’s usually set by top leadership — like the board or senior management — and applies at a big-picture, strategic level.

Example:

A fintech startup might say, “We’re okay taking some cybersecurity risks if it helps us launch faster.” That’s high risk appetite.
On the other hand, a traditional bank might say, “We’ll only take calculated risks, and only after thorough due diligence.” That’s low risk appetite.

And what is Risk Tolerance then?

Risk Tolerance is more specific. It’s the acceptable limit within that appetite — how much variation or deviation is allowed before someone needs to step in or take action.

Example:

Using the same startup above — they may accept some downtime as part of their risk appetite, but they may say, “We can only tolerate 30 minutes of downtime per month. Anything more, we need to investigate or escalate.”

So, while appetite is the general direction, tolerance is the boundary line. If you cross it, alarms go off.

Let me put it another way:

• Risk Appetite is like saying, “I’m okay eating spicy food.”

• Risk Tolerance is like saying, “But not more than two green chilies — anything beyond that, and I’m in trouble.”

Why should you care as an IT Auditor?

When you’re doing IT audits, reviewing risk registers, or even designing controls, knowing the difference helps a lot.

If you don’t understand the organization’s risk appetite, you might recommend controls that are either too weak or unnecessarily strict.

If you don’t know the tolerance levels, you may not realize when a control failure is actually a big deal.

Also, when management says, “We’re okay with that risk,” you need to understand — are they within tolerance? Or has something crossed the line?

Don’t overcomplicate it.

• Appetite = what risk we’re generally okay with.

• Tolerance = how far we’re willing to stretch before it becomes unacceptable.