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What is the Residual Risk in cyber security?

3 minute read
Risk can be divided into 2 parts which are inherent risk and residual risk. Inherent risk is the risk you start with before you take any action to control it. If you take no controlling action and the risk is the inherent risk.
By, Jack Wong

Risk can be divided into two parts: inherent risk and residual risk.

Inherent risk is the risk you start with before you take any action to control it. If you take no controlling action and the risk is the inherent risk. On the other hand, if you do act, then you may not remove all of the inherent risks and the risk that remains is the residual risk.

Residual risk remains after implementing all the risk control actions, for example, security control, policies and procedures and it needs to take proper precautions. In addition, organisations need to assess residual risk to meet compliance and regulatory requirements. In short, residual risk might impact your business after taking all the security measures and it must be taken into account to prioritise security measures and processes over time.

How to calculate Residual Risk in cyber security?

Residual risks can be measured by determining the risk tolerance or how many risks control actions your company is required to prevent any inherent risk from being exploited. After calculating the inherent risks, the protocols necessary to treat these risks, and how much risk is reduced in this process, the strategy developed calculates the residual risk.

Therefore, Residual Risk = Inherent Risks - Impact of Risk Controls  and below are the steps to addressing residual risk:

Step1: Identify potential risks and relevant requirements

Step2: Assess risks

Step3: Set up risk control measures

Step4: Spot out Residual Risk and decide what to do about it

The importance of residual risk and tips for dealing with risks

Residual risk monitoring is part of the ISO 27001 rules. It helps companies measure the security and stability of their information assets before, after and after disclosure to third parties and vendors. To fully comply with these regulations and to allow suppliers and third parties, companies must provide some form of residual risk assessment review alongside the inherent security processes.

As risk cannot be entirely removed and it is part of the circle of business, it is good to repeat measuring residual risk. Understanding the residual risk within the organisation is essential, as it allows the management of the security of assets entrusted to an organisation by 3rd parties. Companies can employ reputable IT support to provide regular residual security checks. If the risk is acceptable to you, you do not have to do anything.

Below are the four tips for businesses to encounter risk:

Prevent the Risk:

Suppose an organisation is not prepared to consider the residual risk. It is unlikely to pay more to lower the risk. In that case, it may be good to look at eliminating the threat. For example, suppose the risk of cyber intrusion is still too high for any sensitive data. In this case, management could decide to take the data offline. This means physically shutting down internet data to eliminate cyber security risks.

Risk Reduction 

When the residual risk is discovered and classified as unacceptable, management will consider the other stages of the process and decide to use a different risk-minimised approach. It might require spending more money as searching for a new approach has not been tried yet. For example, investing in more advanced software or adding high-cost data tracking tools.

Risk Transfer

Insurance helps organisations avoid choosing one of the other options by sharing responsibility with an acceptable strategy. As a result, cyber risk insurance is becoming a desirable approach to the residual risk management dilemma because it allows business processes to run smoothly and effectively without unnecessary disruption.

Risk Acceptance

Management needs to determine the best course of action to take or accept risk. In this case, the correct steps must be taken so responsibilities are clear.

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