How is residual risk defined in risk management?

Residual risk is defined as the level of risk that remains after risk mitigation actions have been implemented. This concept is critical in risk management because it acknowledges that while risk mitigation strategies — such as controls, policies, and procedures — can reduce risk, they often do not eliminate it entirely. Therefore, organizations must be aware of the residual risk to make informed decisions about their overall risk profile and resource allocation.

For instance, even after implementing strong cybersecurity measures, there may still be vulnerabilities that could be exploited. The assessment of residual risk helps organizations to understand the effectiveness of their risk management strategies and to ensure that they are prepared to handle any remaining exposure after controls have been applied.

Understanding residual risk is essential for effective governance, as it allows organizations to prioritize risk responses and manage risks in a way that aligns with their overall risk appetite and business objectives.