CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Risk Management
Arvind Steels Ltd. assesses a risk of a furnace breakdown as having a high likelihood and a high impact. Management's existing controls partly reduce it, but a significant exposure remains after controls. What is the remaining exposure called?
The remaining exposure is residual risk. It is the level of risk left after management's existing controls and responses have been applied, whereas inherent risk is the exposure measured before any controls are considered.
- AInherent risk
- BResidual riskCorrect
- CSystematic risk
- DStrategic risk
Explanation
Inherent risk is the exposure before any controls. After the effect of existing controls is taken into account, the exposure that remains is residual risk. The case states controls only partly reduce it, so inherent is wrong because it ignores controls.
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