In risk management, what does 'residual risk' refer to?

Residual risk refers to the level of risk that remains after an organization has implemented all mitigating strategies to reduce that risk. In the context of risk management, organizations assess various potential risks and take actions or implement controls to minimize these risks. Despite these efforts, some level of risk typically persists due to various factors such as limitations in the mitigation strategies, unforeseen events, or inherent uncertainties in the risk environment.

Understanding residual risk is crucial for effective governance and compliance as it allows organizations to evaluate their risk exposure with a clear view of what remains unaddressed. Organizations can then prioritize their risk management efforts, allocate resources effectively, and develop plans for ongoing risk monitoring and response.

In contrast, potential risk before any strategies are deployed refers to the initial level of risk that has not yet been addressed. Risk perceived by stakeholders represents their perspective on risk, which may influence decision-making but does not reflect the actual risk that remains post-mitigation. All possible risks identified during assessment encompasses a broad view of risk assessments and does not specifically target the concept of risk that remains after implementing mitigation strategies.