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4 Examples of Residual Risk

 , updated on March 25, 2021
Residual risk is the risk that remains after you have treated risks. Risk management involves treating risks meaning that a choice is made to avoid, reduce, transfer or accept each individual risk. It is difficult to completely eliminate risk and normally there is a residual risk that remains after each risk has been managed. The following are a few examples of residual risks.

1. Risk Avoidance

A business decides to avoid the risk of developing a new technology because the project has many risks. The residual risk is that a competitor will develop the technology instead and the business will become less competitive.

2. Risk Reduction

An airline reduces the risk of an accident by improving maintenance procedures. Residual risks remain in the process including a chance of human error such as skipping steps in the procedure.

3. Risk Transfer

A homeowner transfers the risk of flood damages to their home by getting flood insurance. Residual risks include the insurance deducible amount and the chance that the insurance company will go bankrupt as the result of a large scale flood and fail to pay.

4. Risk Acceptance

When a risk is accepted, the entire risk becomes a residual risk. For example, an investor may accept the risk that a stock will go down because they predict that the potential rewards of the investment outweigh the risks.


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AI Risk
Risk Avoidance
Brand Risk
Budget Risk
Business Risks
Change Risk
Compliance Risk
Concentration Risk
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Demand Risk
Dread Risk
Economic Risk
Exchange Rates
Existential Risk
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Force Majeure
Good Risk
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Risk Identification
Infinite Risk
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Inherent Risk
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Legal Risk
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Model Risk
Natural Disasters
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Product Risk
Project Risk
Pure Risk
Quality Risk
Risk Mitigation
Refinancing Risk
Regulatory Risk
Reputational Risk
Residual Risk
Resource Risk
Revenue Risk
Risk Appetite
Risk Aversion
Risk Examples
Risk Management
Risk Management Process
Risk Matrix
Risk Meaning
Risk Measurement
Risk Taking
Risk Tolerance
Risk Triggers
Risk vs Issue
Risk vs Opportunity
Risk vs Uncertainty
Risk-Reward Ratio
Seasonal Risk
Secondary Risk
Security Risk
Settlement Risk
Risk Sharing
Speculative Risk
Strategic Risk
Strategy Risk
Supply Risk
Systemic Risk
Tactical Risk
Taxation Risk
Technology Risk
Risk Transfer
Unforced Error
Upside Risk
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