Residual Risk: What It Is and How to Minimize It

residual risk
residual risk

You probably won’t be surprised to hear that everything is a risk—it might not be a big risk, but even walking out the front door is technically a risk. A risk is an uncertainty that can affect the outcome of a project or action. There are several kinds of risks, and in this article, we’ll talk about the difference between inherent vs residual risk and what you can do to minimize them.

Inherent Risk vs Residual Risk

Thinking about everything that could go wrong pertaining to a certain action is a casual definition of inherent risk. If you walk out the front door, you could slip on the icy stairs during the winter, get pooped on by a bird, get in a car crash on the way to work, and so on. However, you can probably put measures into place that remove or combat a lot of the inherent risks you may encounter.

If there was an ice storm, you can put salt or ice melt on your stairs to help you avoid slipping in the morning on your way to work. You can’t do much to stop a bird from pooping on you besides holding an umbrella over your head, but you can have a few napkins or a cloth in your car that you can use to clean it up if it happens you’re caught without an umbrella.

And though you can’t control the actions of others on the freeway, you can ensure that you get enough sleep the night before so you’re alert and can drive defensively on your way to work or the store.

The risk that is left over after you’ve done all you could to mitigate the inherent risk is called residual risk. If you plan and execute a campaign for your company, an example of residual risk could be a hidden fee for some equipment you rented that you didn’t know about beforehand. By tracking residual risk and planning for it, you can reduce its impact on your company.

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