Residual risk

The residual risk is the risk or danger of an action or an event, a method or a (technical) process that, although being abreast with science, still conceives these dangers, even if all theoretically possible safety measures would be applied (scientifically conceivable measures); in other words, the amount of risk left over after natural or inherent risks have been reduced by risk controls.^[1]

The general formula to calculate residual risk is

${\displaystyle {\text{residual risk}}=({\text{inherent risk}})-({\text{impact of risk controls}})}$

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;^[2] 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”^[3]

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

1. Gregory Monahan (2008). Enterprise Risk Management: A Methodology for Achieving Strategic Objectives. John Wiley & Sons.
2. "Seat Belts: Get the Facts". Motor Vehicle Safety. Centers for Disease Control. 20 August 2015. Retrieved 2016-02-15.
3. "dictionary.com.".

External links

• Residual Risk Reduction^TM
• The Scoring of Residual Risk
• Economist.com
• Euronuclear.org
• R3i.org