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sourceDocument: Yokohama Governance, Risk, and Compliance
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# Risk appetite and tolerance in Advanced Risk

# Risk appetite and tolerance in Advanced Risk {#ariaid-title1}

* Release version: Yokohama
* 
* Updated January 30, 2025
* 
* ![](https://www.servicenow.com/docs/portal-asset/ico-clock) 1 minute to read

You can define a risk appetite and tolerance within your organization by using the Advanced Risk application. A risk appetite and tolerance enable your organization
to define the boundaries for acceptable and unacceptable risks.

## Overview of a risk appetite {#risk-appetite-tolerance__section_kw3_z2f_xvb}

A risk appetite is the amount of risk that an organization is willing to take to achieve its
strategic objectives.  
A risk appetite can be defined in qualitative (numerical scale and ratings) and quantitative (absolute dollar) terms. For example, let's say that a lending institution provides a loan to some small scale industries. The lending institution has defined 5 percent as their target non-performing asset (NPA) for the current fiscal year.  
Note:  
A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue.Therefore, the risk appetite of the institution is 5 percent.

## Benefits of using a risk appetite {#risk-appetite-tolerance__section_hhs_z2f_xvb}

The benefits of having a risk appetite for your organization are as follows:

* Provide better guidance to your first line of employees to implement risk management in specific areas of your business.
* Take risks within your organizational expectations and define and manage actions when there's a breach.
* Assess the risk status that is based on the defined risk appetite and prioritize the risks that require attention.
* Assess all possible risks and define the boundaries for acceptable and unacceptable risks.
* Monitor your risk exposure and ensure that it's consistent with your risk appetite. You can also track any unacceptable risks.
* Initiate a risk mitigation plan based on the risk appetite status.
{#risk-appetite-tolerance__ul_bxl_klf_xvb}

## Overview of risk tolerances {#risk-appetite-tolerance__section_tkt_z2f_xvb}

A risk tolerance is the standard deviation from the defined risk appetite that an organization
can withstand without risking the organization's objectives and goals.

## Setting up a risk appetite and tolerance {#risk-appetite-tolerance__id_gxm_dyl_xvb}

A risk administrator can configure and set up a risk appetite for your organization in the Advanced Risk application. For more information, see [Risk appetite setup](https://servicenow-prod.fluidtopics.net/I5KMsKC2kZABtrKtC5cASQ "You can configure the risk appetite feature in the Advanced Risk application.").