Acceptable Risk

TL;DR

• A subjective, context-dependent threshold for how much risk is tolerable.
• Determined by weighing potential benefits against potential drawbacks.
• Used by individuals, organizations, and governments when making trade-offs in decisions.

Definition

Acceptable risk is the level of risk that is deemed acceptable by a particular individual, organization, or society. It is a subjective concept that varies depending on the context and the specific situation. In general, acceptable risk is the level of risk that is considered to be tolerable or reasonable given the potential benefits and drawbacks of a particular action or decision.

Explanation

Acceptable risk reflects a judgment about tolerability or reasonableness of exposure to harm or loss, made in light of expected benefits and drawbacks. Individuals assess acceptable risk in personal decisions by comparing outcomes (for example, higher salary versus longer hours and commute). Organizations determine acceptable risk by considering factors such as potential impact on reputation, financial losses or gains, and the safety and well-being of employees and stakeholders. Societal judgments of acceptable risk consider impacts on the broader population and may include measures to mitigate risks if benefits are judged sufficient.

Examples

Individual decision (job choice)

If a person is considering a new job that pays a higher salary but also involves working longer hours and a longer commute, they may weigh the potential benefits of the higher salary against the potential drawbacks of the longer hours and longer commute to determine if the risk is acceptable. In this case, the person may decide that the risk is acceptable if the potential benefits outweigh the potential drawbacks.

Organizational decision (product release)

A company may decide that the risk of releasing a new product that has not been thoroughly tested is acceptable if the potential benefits, such as increased profits and market share, outweigh the potential drawbacks, such as the potential for negative customer feedback or product recalls.

Societal decision (medication approval)

The government may decide that the risk of allowing a new medication to be sold without requiring extensive clinical trials is acceptable if the medication has the potential to save many lives and the potential risks can be mitigated through other means, such as post-market monitoring and surveillance.

Use cases

• Risk management
• Public policy
• Decision-making

Notes or pitfalls

• Acceptable risk is complex and subjective, requiring consideration of a wide range of factors.
• Determining acceptable risk involves making difficult trade-offs.
• It is essential for organizations and individuals to carefully consider potential risks and benefits before deciding what level of risk is acceptable.

Related terms

• Risk management
• Public policy
• Decision-making