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Residual Risk

March 5, 2025

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Residual Risk

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What’s Left After You’ve Done Everything Right?

Understanding Residual Risk for Your Business

Residual risk cyber best practices assessment insurance define rmm flaw hypothesis methodology

What is Residual Risk?

In simple terms, residual risk is the small amount of risk that remains after you’ve put security measures and controls in place. It’s the risk you’re willing to live with because it’s either too expensive or impractical to eliminate completely.

Think of it like this: You lock your front door (a security control) to prevent break-ins (a risk). However, a determined thief could still break a window. That possibility of a window break-in is the residual risk. You’ve reduced the risk, but you haven’t eliminated it entirely.

SMB-Specific Considerations

For small and medium-sized businesses (SMBs), understanding residual risk is crucial. Unlike large corporations, you likely have limited resources for cybersecurity. This means you have to make smart, strategic choices about which risks to address.

  • Budget Constraints: You can’t afford every top-of-the-line security tool. You must accept some level of risk.
  • Time & Expertise: You may not have a dedicated IT security team. Your controls might be simpler, potentially leaving more residual risk.
  • Bigger Impact: A single security incident can be devastating for an SMB, making it vital to understand what risks remain after your best efforts.

Cyber Insurance: Your Safety Net

Cyber risk insurance is not a replacement for good security, but it’s a powerful tool for managing residual risk. It acts as a financial safety net for the risks you can’t eliminate.

After you’ve implemented firewalls, antivirus software, and employee training, there’s still a chance of a sophisticated phishing attack succeeding. Cyber insurance is designed to help you recover from the financial fallout of such an incident.

What it can cover:

  • Costs of data recovery and system restoration.
  • Notifying customers affected by a data breach.
  • Legal fees and regulatory fines.
  • Business interruption losses.

Simple Risk Assessments

You can’t protect against a risk you don’t know you have. A cybersecurity risk assessment is simply the process of identifying what your key digital assets are, what threats could affect them, and how vulnerable you are.

For an SMB, this doesn’t need to be a complex, thousand-page document. It can start with a simple process that can take as little as a half-hour (see our TEKCHEK)

How it helps:

  • Identifies your “crown jewels”: What data or systems would hurt your business the most if compromised? (e.g., customer list, payment system).
  • Prioritizes spending: It shows you where to focus your limited security budget for the biggest impact.
  • Justifies security controls: It helps you decide which controls (like multi-factor authentication) are necessary.
  • Informs your insurance needs: By understanding your risks, you can get the right type and amount of cyber insurance coverage.

By performing an assessment, you actively reduce your overall risk, which in turn lowers your final residual risk.

 

Take Control of Your Risk

Understanding residual risk is the first step toward building a more resilient business. Start with a simple assessment to protect what matters most.

 

 

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What is Residual Risk?

Residual risk is the risk that remains after efforts to reduce risk have been taken. It can apply to events, actions, or disasters. this risk includes insurance and regulation.

Definitions

The remaining potential risk after all IT security measures are applied, which means there is a residual risk associated with each threat.
SOURCE: SP 800-33

Portion of risk remaining after security measures have been applied.
SOURCE: CNSSI-4009; SP 800-30

Other Definitions: UN Disaster Risk Reduction 

How does it occur?

Inherent risk: These are the risks that exist before any controls are put in place 

Risk controls: Safeguards, guidelines, or safety measures that are put in place to reduce risk 

Residual risk: The risk that remains after controls are put in place 

Examples 

In cybersecurity, it could be security gaps that remain even after security measures are implemented 

  • In project management, they  could be a hidden fee for a rental item.
  • In insurance, silent cyber is a concept that describes language or sublimits that reduce coverage.
  • In regulatory compliance, fines for not filing or not complying may be this form of risk. 

Managing it

  • Organizations can track this risk and plan for it to reduce its impact 
  • Organizations can schedule compliance audits. This ensures that these risks are managed
  • Organizations can develop and support emergency services, preparedness, response, and recovery capacities 

Understanding it

The concept of it acknowledges that it’s impossible to completely eliminate all risks. 
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