What is inherent risk?

Inherent risk refers to the level of risk that exists in the absence of any controls or mitigating measures. This type of risk is fundamentally tied to the nature of the activities and operations within an organization and encompasses the threats and vulnerabilities that are present due to factors like processes, technologies, and environments without considering any risk management actions that could be taken. Understanding inherent risk is crucial for organizations as it lays the groundwork for subsequent risk assessments and the implementation of controls designed to mitigate these risks.

Recognizing inherent risk allows organizations to gauge the potential level of exposure and determine the extent to which controls need to be established to reduce risk to an acceptable level. This means that in the context of risk management, inherent risk represents the baseline risk that must be addressed through effective strategies and actions.