What does the term "residual risk" refer to?

Residual risk refers to the level of risk that remains after all possible measures to identify, assess, and mitigate risks have been taken. It acknowledges that no risk management strategy can completely eliminate all risks; therefore, certain risks will always persist. Organizations must understand and accept that there is a degree of risk that will remain even after implementing controls and mitigating strategies.

This concept is crucial in risk management because it helps organizations make informed decisions about whether the remaining risk is acceptable or if further action is necessary. Evaluating residual risk allows businesses to weigh the costs of additional controls against the potential impact of the remaining risk, ensuring that they allocate resources effectively.

In contrast, the other options do not accurately define residual risk. The notion of risk being completely mitigated contradicts the very essence of residual risk, as it implies that there is no remaining risk at all. Risks considered too low to manage are typically not referred to as residual risks but instead may fall under a threshold of acceptable risk or inherent risk. Lastly, while potential future risks based on current operations might be a legitimate concern, they don't align with the definition of residual risk, which specifically pertains to the risks that still exist following risk mitigation measures.