Residual risk

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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]

One approach to scoring residual risk is to apply subjective judgement without applying any mathematical relationship between the inherent risk and the level of control effectiveness. A second method is to apply a mathematical approach.[2]

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;[3] 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”[4]

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

See also[edit]

References[edit]

  1. ^ Gregory Monahan (2008). Enterprise Risk Management: A Methodology for Achieving Strategic Objectives. John Wiley & Sons.
  2. ^ Tattam, David. "The Scoring of Residual Risk". Protecht Risk Management Insights. Retrieved 2017-05-01.
  3. ^ "Seat Belts: Get the Facts". Motor Vehicle Safety. Centers for Disease Control. 20 August 2015. Retrieved 2016-02-15.
  4. ^ "dictionary.com". Missing or empty |url= (help)

External links[edit]