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Residual risk

From Wikipedia, the free encyclopedia

The residual risk is the amount of risk or danger associated with an action or event remaining after natural or inherent risks have been reduced by risk controls.[1]

The general formula to calculate residual risk is

where the general concept of risk is (threats × vulnerability) or, alternatively, (severity × probability).

An example of residual risk is given by the use of automotive seat-belts. Installation and use of seat-belts reduces the overall severity and probability of injury in an automotive accident;[2] however, probability of injury remains when in use, that is, a remainder of residual risk.

In the economic context, residual means “the quantity left over at the end of a process; a remainder”[3]

In the property rights model it is the shareholder that holds the residual risk and therefore the residual profit.

See also[edit]


  1. ^ Gregory Monahan (2008). Enterprise Risk Management: A Methodology for Achieving Strategic Objectives. John Wiley & Sons.
  2. ^ "Seat Belts: Get the Facts". Motor Vehicle Safety. Centers for Disease Control. 20 August 2015. Retrieved 2016-02-15.
  3. ^ "dictionary.com". {{cite web}}: Missing or empty |url= (help)

External links[edit]