Merriam-Webster’s definition of calculated risk:
- a hazard or chance of failure whose degree of probability has been reckoned or estimated before some undertaking is entered upon
- an undertaking or the actual or possible product of an undertaking whose chance of failure has been previously estimated
Calculated Risk in Cyber Risk Management
In the context of cyber risk management, a calculated risk refers to the strategic and deliberate acceptance of a certain level of risk after a thorough assessment and analysis. It involves making informed decisions about excessive risks and which risks are acceptable within an organization’s risk appetite.
A Step-by-Step Guide:
Risk Identification: Begin by identifying and prioritizing potential cyber threats and vulnerabilities. This involves conducting risk workshops, engaging with cybersecurity experts, and analyzing historical data breaches.
Risk Assessment: Assess the likelihood and impact of identified risks. Use scales and risk calculators to categorize risks based on likelihood and potential impact.
Risk Prioritization: Develop a risk matrix to prioritize identified risks. This helps in focusing efforts on high-priority concerns that require immediate attention.
Risk Measurement: Assign values to aspects of the risk for a more detailed analysis. Consider potential financial loss, probability of occurrence, and other metrics.
Decision-Making: Make informed decisions about whether to accept identified risks. This involves a cost-benefit analysis to determine the most effective risk treatment strategy.
Risk Treatment: Implement measures to mitigate identified risks. This may include deploying advanced cybersecurity solutions, employee training programs, and continuous monitoring.
Calculated Risks in Real Life
Meet Sarah, the CEO of a small professional services firm specializing in marketing consultancy. Sarah has been observing a shift in client expectations, with an increasing demand for integrated digital marketing solutions. Recognizing the potential for growth in this area, she contemplates the strategic opportunity to invest in specialized software that could enhance the firm’s digital marketing capabilities.
Risk Opportunity:
Sarah identifies the opportunity to differentiate her firm by offering cutting-edge digital marketing services. This could lead to attracting high-profile clients, expanding service offerings, and establishing the company as a leader in the evolving digital marketing landscape.
Calculated Risk Assessment:
Risk Identification:
- Sarah identifies potential risks, including the upfront investment in acquiring and implementing the new software, the learning curve for her team to adapt to the technology, and the potential resistance from existing clients not interested in digital services.
Qualitative or Quantitative Risk Assessment:
- Sarah uses a risk assessment calculator to assess risks. While acknowledging the potential challenges, she recognizes the competitive advantage that advanced digital marketing capabilities could provide in the long run.
Risk Prioritization:
- Using a risk matrix, Sarah prioritizes the identified risks. She acknowledges that the financial investment is a high-priority concern but deems it necessary for the strategic advancement of the firm.
Decision-Making:
- After a thorough cost-benefit analysis, Sarah decides to accept the calculated risks. She believes that the potential benefits, including attracting new clients, staying competitive, and future-proofing the business, outweigh the risks associated with the initial investment.
Risk Treatment:
- Sarah implements risk treatment measures by selecting a reputable software provider, investing in comprehensive training programs for her team, and communicating the strategic shift to existing clients with a tailored transition plan.
Outcome:
Sarah’s decision to take the calculated risk pays off. The firm successfully integrates the new digital marketing capabilities, attracting new clients seeking advanced services. The strategic investment increases the firm’s revenue and positions it as an industry leader in providing comprehensive digital marketing solutions.
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Four Approaches to Risk
Here are common risk management actions:
Risk Avoidance:
Avoiding risk involves taking actions to eliminate the possibility of the risk occurring.
- Example: A company decides not to enter a new market with high political instability to avoid potential business disruptions.
Risk Mitigation:
Mitigating risk involves taking measures to reduce the impact or likelihood of a risk.
- Example: A manufacturing company invests in redundant machinery to mitigate the risk of production downtime due to equipment failure.
Risk Transfer:
Transferring risk involves shifting the financial consequences of a risk to another party, often through insurance or outsourcing.
- Example: A construction company transfers the risk of workplace accidents to an insurance provider through liability insurance.
Risk Acceptance:
Accepting risk involves acknowledging the potential impact of a risk and deciding not to take further action.
- Example: A technology company accepts the risk of a product launch not meeting revenue expectations due to market uncertainties.
Where Calculated Risk Fits In
Calculated risk is a subset of risk acceptance but with a distinct characteristic—it involves a more strategic and deliberate decision-making process. Unlike general risk acceptance, calculated risk considers a thorough analysis of potential benefits and drawbacks. It aligns with strategic opportunities where organizations consciously choose to take on a certain level of risk to achieve specific business objectives.
How To Calculate Relative Risk
Relative risk is a measure used in epidemiology and statistics to assess the likelihood of an event or outcome occurring in one group compared to another. It’s often used in cohort studies to evaluate the association between an exposure and an outcome. The relative risk is calculated as the ratio of the probability of the event occurring in the exposed group to the probability of the event occurring in the unexposed (or less exposed) group.
Here’s the formula for the calculation of the risk ratio for relative risk:
Relative Risk (RR)=Probability of Event in Exposed Group Divided By Probability of Event in Unexposed Group
Relative Risk (RR)=
Probability of Event in Unexposed Group
—————————————————
Probability of Event in Exposed Group
Start Getting Value With
Centraleyes for Free
See for yourself how the Centraleyes platform exceeds anything an old GRC
system does and eliminates the need for manual processes and spreadsheets
to give you immediate value and run a full risk assessment in less than 30 days
