What are inherent risks?

Inherent risks are best described as those risks that exist within an organization or process in the absence of any controls or mitigation measures. This definition captures the fundamental nature of inherent risks, as they are associated with the potential threats that arise simply from the normal operating environment and activities of the organization. Identifying inherent risks is crucial because it allows organizations to understand what vulnerabilities exist without any risk management strategies in place.

Recognizing these risks helps organizations to assess the level of risk exposure and prioritize the development of controls or mitigation strategies to manage them effectively. Without understanding inherent risks, organizations may overlook significant threats that could lead to loss, disruption, or failure if not addressed.

While the other options mention aspects of risk management, they do not accurately define inherent risks. For instance, eliminating risks through controls focuses on what's done to mitigate risks rather than the risks themselves. Identified and monitored risks refer to risks that have been acknowledged and are under observation, which doesn’t capture ‘inherent.’ Transferring risks to third parties involves risk transfer strategies, which are a response to risks rather than the definition of inherent risks. Each of these concepts relates to risk management but does not represent the essence of what inherent risks truly are.