Residual risk

The residual risk is the amount of risk or danger associated with an action or event remaining 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.