Based on risk tolerance threshold, which factors determine inherent and residual risk levels?

The selection of inherent risk and residual risk impacts as a basis for determining risk levels highlights the importance of understanding the nature and context of the risks that an organization faces. Inherent risk refers to the level of risk that exists in the absence of any controls or risk management strategies. It reflects the fundamental risks associated with the organization's activities and environment. On the other hand, residual risk is the level of risk that remains after controls and mitigation measures have been implemented. It is crucial to measure the impacts of both types of risks to understand the organization's overall risk profile and tolerance threshold accurately.

For effective risk management, organizations need to assess both the inherent risks and how their mitigating efforts reduce those risks, which confirms whether they fall within the identified risk tolerance threshold. This involves understanding the potential impacts of these risks, enabling organizations to make informed decisions about resource allocation, control measures, and strategic planning according to the risks they are willing to accept or mitigate.

Other options, while they contain elements related to risk management, do not directly address the specific impacts of inherent and residual risk levels. For instance, regulatory compliance and employee satisfaction focus more on external and internal stakeholder requirements rather than intrinsic risk factors themselves. Similarly, strategic planning and operational efficiency, as well as risk management policies