Inherent risks include all security risks that are present without any security controls. Residual risks are the security risks that remain after security controls are implemented.

Residual risks are inevitable. Even with an abundance of security controls, vestiges of residual risks will remain that could expose your sensitive data to cyber attacks. This is because the digital transformation combines the threat landscapes of your vendors with your own, essentially making their security risks, your security risks.

Difference between inherent and residual risks

Because residual risks are unavoidable, their effective management involves the pursuit of the optimal balance between acceptable and unacceptable risks. When implementing security controls, the objective should be to suppress the inherent risk factor as far below your risk threshold as possible,

inherent risk bar being compressed by security controls to create a shorter residual risk bar

There are exceptions for critical processes exceeding the risk threshold. These should sit within a tolerance threshold that has been carefully defined to support the safety and integrity of sensitive resources while still permitting risks beyond the threshold.

risk tolerance band sitting between residual risk limit and inherent risk limit

Learn how to calculate the risk appetite for your Third-Party Risk Management program.

Why is Residual Risk Important?

Residual risk is important because most cybersecurity regulations, such as ISO 27001, require organizations to implement security controls to monitor and manage risk tolerance.

Highly regulated industries, such as healthcare entities and financial institutions, are under particular pressure to implement the best enterprise risk management strategies into business processes. This is because the consequences of poor information security practices in these industries are very severe.

Effective residual risk management is a combination of internal controls and external risk controls. The external component is especially important because of the significant cyber risks and third-party risks that are introduced during the vendor onboarding process

In the absence of controls, manual risk analysis across a rapidly expanding digital attack surface is a logistical impossibility.

For the most effective risk management strategy, an attack surface monitoring solution should be implemented. These solutions help security teams rapidly scale their risk assessment efforts by keeping them informed of current risk levels, vendor risk scores, the risk impacts if new cloud solutions and risk profiles of each vendor.

The most sophisticated attack surface monitoring solutions also offer Vendor Tiering, a means of categorizing vendors based on the types of risks and amount of risk they introduce to an ecosystem.

Learn more about residual risks.

Why is Inherent Risk Important?

Understanding inherent risk and inherent impact is important because it helps security teams understand the current level of risk and the set of controls required to successfully address all risk factors.

This essential prerequisite to the implementation of a cybersecurity program ensures the efficiency of security posture strengthening efforts.

Learn more about inherent risks.

Key Takeaways

  • Inherent risks are the security risks within an IT ecosystem in the absence of security controls.
  • Residual risks are the security risks that remain in an IT ecosystem after security controls have been implemented.
  • Some security controls introduce additional residual risks, known as secondary risks.
  • Security controls should suppress inherent risk levels as far below the risk threshold as possible.
  • A vendor's risk profile can be identified through risk assessments or security questionnaires.

Mitigate Residual Risks with UpGuard

UpGuard monitors both the internal and third-party attack surface to minimize the residual risks exposing sensitive data. Get a free preliminary evaluation of your organization's risk of a data breach. Click here to request your instant security score now!

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