What is Residual Risk in Cybersecurity?

Residual Risk is the risk that remains after all the attempts have been done to detect and eliminate some or all categories of risk. It is important to assess residual risk to meet compliance and regulatory requirements. Residual risk must be evaluated in order to prioritize security measures and processes over time.

How is Residual Risk Calculated?

Before developing a risk management strategy, you must first quantify all of the residual hazards unique to your digital ecosystem. This will assist you in defining the particular requirements for your management plan as well as allow you to assess the effectiveness of your mitigation measures.

Calculating the remaining dangers in an ecosystem is a difficult task.

Residual Risk = Inherent Risks − The Impact of Risk Controls

To assess the effectiveness of recovery programs, residual risks can be compared to risk tolerance (or risk appetite). This will compel an examination of all security procedures in place and find any flaws that allow for excessive inherent risks. Security teams may perform targeted remediation efforts with such vital analytics, allowing for the efficient deployment of internal resources.

Inherent Risk vs. Residual Risk

The main distinction between inherent and residual risk assessments is that the latter considers the impact of controls and other mitigation strategies.

Each assessment program requires the definitions listed below −

  • The inherent likelihood is the possibility of an incident occurring in an environment with no security safeguards in place.

  • Inherent impact − The effect of an occurrence on a system that lacks security safeguards.

  • The possibility of an incident occurring in an environment with security safeguards in place is known as residual likelihood.

  • The residual impact is the effect of an occurrence on an environment with security controls in place.

Inherent risk is established only after the entity's major objectives have been stated and efforts made to discover what could go wrong to prevent the entity from reaching those objectives.

Aside from the impact and likelihood, the management evaluates the type of the risk, such as whether it is caused by fraud, natural catastrophes such as storms, or complex or uncommon commercial activities. Understanding the risk's origins and characteristics aids in determining its possible impact and chances of occurrence.

The greater the reliance on existing internal controls, and hence their effectiveness, the longer the path between inherent and residual risks.

How is Residual Risk Managed?

The ability of an organization to change the acceptable amount of risk in any given scenario is key to managing residual risk. Organizations can take the following steps to mitigate any residual risk −

Organizations can simply assume that the established controls have proven effective enough to decrease the risk to an acceptable level if the residual risk is below the acceptable level of risk in any undertaking.

Update or increase controls implemented. If residual risk remains above an acceptable risk level, new or changed controls and processes may be required to bring the inherent risk down to an acceptable level.

Evaluate controls vs. mitigation costs to make a decision. Suppose the residual risk remains above an acceptable threshold of risk and the cost of the necessary controls and countermeasures is prohibitively high. In that case, organizations may be forced to accept the risk, regardless of the residual risk.

How to Define Acceptable Levels of Risk

For each asset, acceptable risks must be established. With a large asset inventory, this can become an impossible requirement. The acceptable risk analysis approach that follows will aid in the distribution of effort and speed up the process.

This can be accomplished using the risk analysis approach outlined below −

  • Use digital footprint mapping to identify all assets.

  • Assign an owner to each asset (or group of assets).

  • Determine the existing and potential vulnerabilities of each asset

  • The likelihood of these flaws being exploited in quantity

Tolerable risk levels should be expressed as a percentage, where −

  • The risk is considered acceptable if the intrinsic risk factor is less than 3 percent (high-risk tolerance).

  • If the inherent risk factor is between 3 and 3.9, the risk is considered to be tolerable (moderate-risk tolerance).

  • A risk factor of between 4 and 5 equals 10%. (low-risk tolerance)