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.{{cite book | author = Gregory Monahan | title = Enterprise Risk Management: A Methodology for Achieving Strategic Objectives | publisher = John Wiley & Sons | url = https://books.google.com/books?id=yJ8SS4alThwC | year = 2008 | isbn = 978-0-470-37233-3 }}

The general formula to calculate residual risk is

:$\backslash text\{residual\; risk\}\; =\; (\backslash text\{inherent\; risk\})\; -\; (\backslash text\{impact\; of\; risk\; controls\})$

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;{{cite web|title = Seat Belts: Get the Facts|url = https://www.cdc.gov/Motorvehiclesafety/seatbelts/facts.html|website = Motor Vehicle Safety|access-date = 2016-02-15|publisher = Centers for Disease Control|date = 20 August 2015}} 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”.

In the property rights model it is the shareholder that holds the residual risk and therefore the residual profit.