Tolerance is one of the major controls of a Prince2 project, and is key to the concept of management by exception.
There is a recognition in Prince2 that no project ever goes exactly according to plan, and that managers need some leeway to make decisions and adjustments. When a plan is presented for approval, the approving body can set tolerances, or 'margins of error' within which managers can manouver without resorting to higher authority. If it is predicted that tolerances will be exceeded, then the manager is obliged to make an 'exception report' to escalate the problem to higher management where a decision can be made. In many cases, an exception plan will be required.
Tolerance can be set on any variable of the project, most usually on time and cost, but possibly on other factors such as expected benefits, quality or risk.
The use of tolerance across four layers of  management in a Prince2 project can be summarised like this:
