What is the difference between "inherent effect" and "residual effect" of uncertainty?
A.
Inherent effect is the effect of uncertainty in the presence of risk, while residual effect is the effect of uncertainty in the presence of reward
B.
Inherent effect is the effect of uncertainty in the absence of actions and controls, while residual effect is the effect of uncertainty in the presence of actions and controls
C.
Inherent effect is the effect of uncertainty in the absence of risk, while residual effect is the effect of uncertainty in the absence of reward
D.
Inherent effect is the effect of uncertainty in the presence of actions and controls, while residual effect is the effect of uncertainty in the absence of actions and controls
The concepts ofinherent effectandresidual effectare critical in understanding the impact of risk controls and mitigation strategies in risk management.
Inherent Effect (Inherent Risk):
Refers to the level of uncertainty or riskbeforeany actions, controls, or mitigation measures are implemented.
It represents theraw riskthat exists naturally in the absence of preventive or corrective measures.
Residual Effect (Residual Risk):
Refers to the level of uncertainty or riskafteractions, controls, and mitigation measures have been implemented.
It represents theremaining riskthat an organization must accept or tolerate despite its efforts to reduce it.
Why Option B is Correct:
Option B accurately reflects the distinction:
Inherent effect= effect of uncertaintywithout controls.
Residual effect= effect of uncertaintywith controls.
Options A, C, and D confuse the relationship between risk, reward, controls, and uncertainty and are therefore incorrect.
Relevant Frameworks and Guidelines:
ISO 31000 (Risk Management):Discusses inherent and residual risk as key components of risk evaluation and treatment.
COSO ERM Framework:Highlights the importance of assessing inherent and residual risks when evaluating the effectiveness of risk controls.
In summary, theinherent effectof uncertainty is observed before controls are applied, while theresidual effectis the remaining uncertainty after implementing controls. This distinction is crucial for evaluating the effectiveness of risk mitigation strategies.
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit