The residual risk is the amount of
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environm ...
or
danger associated with an action or event remaining after natural or
inherent risk Inherent risk, in risk management, is an assessed level of raw or untreated risk; that is, the natural level of risk inherent in a process or activity without doing anything to reduce the likelihood or mitigate the severity of a mishap, or the amou ...
s have been reduced by risk controls.
The general formula to calculate residual risk is
:
where the general concept of risk is (
threats ×
vulnerability
Vulnerability refers to "the quality or state of being exposed to the possibility of being attacked or harmed, either physically or emotionally."
A window of vulnerability (WOV) is a time frame within which defensive measures are diminished, com ...
) 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; 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”
In the property rights model it is the shareholder that holds the residual risk and therefore the
residual profit.
See also
*
Risk analysis
*
Risk management
References
{{reflist
External links
Residual Risk ReductionEconomist.comR3i.org
Risk