Inherent risk

Inherent risk is the starting point—it reflects the natural level of risk without any risk-reduction measures. Residual risk, on the other hand, is what remains after all risk controls (like access restrictions, audits, or encryption) have been applied. While inherent risk can’t be eliminated entirely, it can be reduced to a more acceptable residual level.

To manage inherent risk, businesses must first conduct thorough risk assessments to identify where vulnerabilities lie. Then they implement layered controls, such as policies, technology solutions, training, and regular monitoring. The goal is to reduce the potential impact and likelihood of threats—bringing risk to a level that aligns with the organization’s risk appetite.

One major challenge is accurately identifying all relevant risks in complex systems, especially as businesses scale or adopt new technologies. Another is underestimating risk due to incomplete data or poor communication between departments. Finally, ensuring that mitigation efforts evolve alongside the risk landscape is an ongoing struggle for many organizations.