What is Project Tolerance?

A project tolerance is the permitted (approved) deviation from planned parameters. Usually this will be increase or decrease from planned cost or time. For example 5% above or below the project budget. stakeholdermap.com
Project tolerances may also be defined for deviations from quality, scope, risk and benefits. Prince 2 tolerances are set for each level of plan, so team, stage and project plans will each have tolerances. Forecast deviation from a team plan might require project manager sign-off, whereas forecast deviation from a project plan would require a higher level of approval. The tolerances and approvals would be documented in the PID (see also Prince2 PID template).
approvals for forecast deviations against a plan - project tolerances

Example project tolerance and exception procedure

Cost and time tolerances

This is an example procedure for when a project or work package is forecast to exceed a pre-agreed tolerance. This procedure is from a real-world project and was documented in the project PID. The matrix has parameters for budget range and percentage of that budget.

For example if a work package is forecast to go 10k over budget, but that equates to 5% of the overall budget then the program office would need to approve. Here are two worked examples:

  • widget H1c budget 110k, is forecast to exceed its budget by 0.9% project manager can sign-off the exception and associated change requests.
  Approval up to x % of overall budget
Tolerance Project Manager Program Office Project Board

0 to 24,999


> 2.5 - 10.0%

> 10%

25,000 to 99,999

1.5% > 1.5 - 7.5% > 7.5%
Over 100,000 1% > 1 - 5% > 5%
Product delayed < = 1 week 1 to 2 weeks > 2 weeks

Exception process

This example documents the process to be followed for risks or issues that impact project time or cost. For example if an issue occurs that will impact cost, but within the project tolerance then the Project Board approves corrective action e.g. a change order.

If a risk management action will impact cost outside of agreed tolerance then the program board approval will be needed.

Type of Risk/Issue Exception process Owner(s)
No impact on cost, timeline, or scope Manage within the project team. Using risk & issue management procedures. Project team

Project change: Impacts cost, timeline or scope within tolerance

Escalate to the project manager.

Project manager invoke corrective action which will likely include Change Control. He/she will submit an exception report and change request (if applicable) to the Project Board for approval.

Project Manager

Project change: Impacts cost, timeline or scope outside tolerance

As for medium impact change, but approval also requires program board sign-off. Project Manager- and Project Board.
A real world example using the table above:
There is a risk that there will insufficient storage for project data, a mitigating action to reduce the risk is to purchase more storage as a back up. The cost will be within cost tolerance so approval for the cost is required from the Project Board. The Project Manager will prepare an exception report for a Project Board approval and a change request for the additional cost.

Further reading on project management