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 environme ...
or
danger
Danger is a lack of safety and may refer to:
Places
* Danger Cave, an archaeological site in Utah
* Danger Island, Great Chagos Bank, Indian Ocean
* Danger Island, alternate name of Pukapuka Atoll in the Cook Islands, Pacific Ocean
* Danger Isla ...
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 amoun ...
s have been reduced by risk controls.
The general formula to calculate residual risk is
:
where the general concept of risk is (
threat
A threat is a communication of intent to inflict harm or loss on another person. Intimidation is a tactic used between conflicting parties to make the other timid or psychologically insecure for coercion or control. The act of intimidation for co ...
s ×
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
A residual is generally a quantity left over at the end of a process. It may refer to:
Business
* Residual (entertainment industry), in business, one of an ongoing stream of royalties for rerunning or reusing motion pictures, television shows or ...
.
See also
*
Risk analysis
*
Risk management
References
{{reflist
External links
Residual Risk ReductionEconomist.comR3i.org
Risk