Concerning safety risk evaluations for suppliers, it may be tempting to concentrate on initial threats, including the risk factors implicit in them. Although these considerations are incredibly significant, the Company’s risk management plan will remain a combination of things if you ignore or miss the residual risk. Let us understand its meaning, its importance, and the formula. 

In this article, we’ll explore

  1. What is Residual Risk? 
  2. How Do You Calculate Residual Risk
  3. Why is it important?

1. What is Residual Risk?

Residual risk is the number of changes in the operation of any business after other threats have been measured and protected. There are many risks involved with a company operation, and the organization takes all of these risks into account. It counteracts or removes all identified hazards of the procedure. In the process, the dangers included may be due to uncertain factors or risks due to identified factors that cannot be resolved or addressed, and those risks define residual risk.

The risks of a business that persists after all defined threats will be removed by the Company’s actions or through risk controls.

For a residual risk example, let us take the car seat belts. There have initially been several deaths and fatalities due to collisions without seatbelts. Since the seat belts have been introduced and made compulsory by law, deaths and accidents have declined substantially. However, as long though the driver wears these seat belts, accidents, and deaths continue; this may describe residual risk. The seat belts have helped reduce the risk, but there is still a certain amount of risk; that is why accidental deaths occur.

Need help on how to calculate residual risk? There is a general formula for it.

Residual risk = Inherent Risk – Risk Control

The inherent danger is the risk that exists in mitigation factors that are not in place. It is also referred to as the risk before controls or the gross risk.

The impact of risk controls is the amount of risk mitigated or eliminated by external or internal risk controls.

Let us give you a residual risk assessment example and determine how do you calculate it

2. How Do You Calculate Residual Risk

Consider an organization that has begun a new project. The organization could lose 600 billion without any risk controls. However, the business drafts and practices guidance on risk assessment and takes action to quantify residual risk and minimize those defined risks. The Company did residual risk analysis and estimated the effect of risk management as 300 billion following internal controls. This residual risk is determined when the impact can be defined as reduced risk loss by surveillance.

Here, Inherent Risk = 600 billion.

Impact of Risk Control = 300 billion

The calculation of residual risk definition= 600 billion – 300 billion = 300 billion

Steps to calculate Residual risk

Step 1: Identify Risks

Step 2: Assess risks

Step 3: Identify possible mitigation measures

Step 4: Decide what to do about the residual risk

It is worth repeating that the possibility of risk can never be removed as it’s all a part of business life. It is more important to think about the amount of danger that you are ready to deal with. It is not essential to bring the risk down to zero, but it should be at a level of acceptable risks. If the risk is tolerable for you, then you do not have to do anything – the cyber protection risk assessment process will take care of it. 

In four ways, businesses are dealing with risk. However, the Company aims to minimize risks in one way or another when such threats are created. These four strategies are listed in depth with examples of a residual risk:

A) Avoid the Risk

If management is not prepared to consider the residual risk or willing to invest more money to lower the amount of risk, it may be looking to eliminate the threat. For example, suppose the danger of cyber intrusion remains too high for any sensitive data. In that case, management could decide to take the data offline – to physically close the data of the Internet, thus eliminating the risk of cybersecurity. 

B) Risk Reduction

When the residual risk is unacceptable, management will consider the third stage of the process and determine other potential mitigating risk-reduction steps. This may mean searching for new measures that have not yet been tried, which involves spending money. For example, it might purchase a more advanced and powerful firewall or add costly data tracking tools or implement more complicated multiple-factor authentication schemes. Here the trade-off between the risk and the profit of the new initiatives would have to be handled.

C) Risk Transfer

This is where a whole different perspective is opening up: incorporating the idea of insurance into the residual risk cybersecurity. Insurance helps the organization avoid choosing one of the other alternatives by sharing responsibility with an acceptable strategy. Cyber risk insurance is becoming a desirable approach to the residual risk management dilemma because it is fast and effective in executing company processes without unnecessary disruption.

Small businesses cannot generally conduct numerous audits and analyses of risk mitigation strategies. While cybersecurity insurance increasingly occupies a well-defined position in the overall cybersecurity risk management framework. 

D) Risk Acceptance

Management will decide the best course of action by either taking the chance or by accepting the risk. In that case, the proper steps must be done in such a manner that the responsibility for doing so is straightforward.

3. Why is it important?

Residual risk monitoring is part of the ISO 27001 rules, which help companies to measure how safe and stable information assets are before, after, and after sharing with third parties and vendors. To comply entirely with these regulations and to allow suppliers and third parties to exchange data with the Company lawfully, companies must provide some form of residual risk assessment review alongside the inherent security processes.


Residual risks are the remaining chances left after the unknown risks have been affected, countered, or mitigated. Hope the above details have cleared your doubts. 

So, have you made up your mind to make a career in Cyber Security? Visit our Master Certificate in Cyber Security (Red Team) for further help. It is the first program in offensive technologies in India and allows learners to practice in a real-time simulated ecosystem that will give you an edge in this competitive world.