What does residual risk represent?

Residual risk represents the risk that remains after relevant treatment has been applied to mitigate or manage identified risks. This concept is essential in risk management practices, as it acknowledges that, despite efforts to control or reduce risk through various measures, some level of risk will persist.

Understanding residual risk is crucial for organizations because it helps in strategic decision-making and prioritizing areas that may still require attention or additional safeguards. Organizations must continually assess and monitor this residual risk to ensure it remains within acceptable levels, aligning with their risk appetite and tolerance thresholds. It allows for a realistic perspective on the effectiveness of risk management strategies and resource allocation.