Residual risk
Encyclopedia
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).
The formula to calculate residual risk is (inherent risk
) x (control risk) where inherent risk is
(threat
s × vulnerability
).
In the economic context, residual means “the quantity left over at the end of a process; a remainder” (dictionary.com).
In the property rights model it is the shareholder that holds the residual risk and therefore
the residual profit.
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
or danger
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
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).
The formula to calculate residual risk is (inherent risk
Inherent risk
Inherent risk, in the audit of financial statements, is the risk that the account, disclosure or financial statement note being attested to by an independent CPA firm is materially misstated without considering internal controls due to error or fraud...
) x (control risk) where inherent risk is
(threat
Coercion
Coercion is the practice of forcing another party to behave in an involuntary manner by use of threats or intimidation or some other form of pressure or force. In law, coercion is codified as the duress crime. Such actions are used as leverage, to force the victim to act in the desired way...
s × vulnerability
Vulnerability
Vulnerability refer to the susceptibility of a person, group, society, sex or system to physical or emotional injury or attack. The term can also refer to a person who lets their guard down, leaving themselves open to censure or criticism...
).
In the economic context, residual means “the quantity left over at the end of a process; a remainder” (dictionary.com).
In the property rights model it is the shareholder that holds the residual risk and therefore
the residual profit.