There is Always Risk – Residual VS Inherent is the Key

I was having a conversation with an associate the other day and “Risk”, as it normally is, was the hot discussion. The statement of “there is always risk regardless of controls” was brought up and it got me thinking… What analogy is best to help explain Inherent risk VS Residual risk? For anyone dealing with putting a teenage driver on the road, this may help explain.

There is an inherent risk to a teenage, inexperienced driver being involved in an accident. The statistics are everywhere. However, there are controls established, some as regulated laws and some as best practices or standards, to help reduce the risk levels. Most would agree that allowing any teenager physically able to drive a car to do so legally without restriction would be catastrophic.

So the regulations of a minimum age (16-17) depending on state, completion of Written Exams with a passing grade, completion of physical driving exam with a passing grade were put in place. These regulations helped to set standards of acceptable risk, bringing the Inherent Risk of incident to a residual risk of incident. However, the risk of an incident still exists.

To help bring down the risk further, some have instituted controls or standards of limiting the number of passengers that a teenage driver can have in the vehicle, restricted the times a teenage driver is on the road, and even restricting the usage or distance the vehicle can be driven. But as with most standards these only help reduce risk if they are being done. A system to check them is needed. And once again, even with every regulation followed, and every standard met, the risk is still there (as any parent of the driver knows), but it is Residual risk and no longer Inherent.

In business, this holds true. Risk is always here. And although industry risk can be different, every company needs to be able to measure their risks, bring the inherent to residual, and be able to make sure they are staying there. Sometimes this is mandatory GRC, sometimes it is best practice policy and procedure, but it is always a function a company needs to be doing. Software, like predict360, help achieve this business need.

 

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