Quantitative Risk Assessments

What is Quantitative Risk?

NIST describes quantitative risk as the “use of a set of methods, principles, or rules for assessing risks based on the use of numbers where the meanings and proportionality of values are maintained inside and outside the context of the assessment.”

What does this mean in layman’s terms? Quantitative risk management uses monetary values to measure risk. It focuses on hard values and percentages, utilizing mathematical formulas to calculate the value of expected losses associated with a particular risk, based on many variables.

The quality of the data used in a quantitative assessment determines the quality of the results. Assuming it’s of a high standard, this type of assessment can be employed to discover crucial factors regarding your risk posture. For example, this data can help anticipate the potential outcome of events or the impact a risk occurring will have on assets. Quantitative risk results can then be appraised bringing the company to adopt a risk response that everyone trusts.

Implementing a Quantitative Risk Analysis

A quantitative risk assessment is generally accomplished by determining the following values:

  • Create an asset inventory and use Asset Valuation (AV) to determine the value of your assets
  • Identify your threats including likelihood of risk occurrence, probability of associated loss, and what the impact will be if the risk occurs
  • Determine the Exposure Factor (EF) for each IT asset in relation to each threat. EF is usually in the form of a percentage of an asset’s value that is likely to be destroyed by a particular risk

Following these results, you can calculate several key variables:

  • Single Loss Expectancy (SLE): SLE can be described as the expected monetary value loss from the occurrence of a risk on an asset
  • Annual Rate of Occurrence (ARO): ARO is the result of quantitative risk analysis that represents the estimated frequency of a specific threat or risk that will take place in any given year
  • Annual Loss Expectancy (ALE): The ALE is the annual expected financial loss to an organization’s IT asset because of a particular threat occurring

The ALE is usually the metric needed to determine the priority and threat potential of a risk situation. A return-on-investment (ROI) or cost-benefit analysis can be especially helpful here, specifically if you need to justify the cost of implementing security controls and safeguards based on the quantitative risk assessment’s results.

Qualitative vs. Quantitative Risk

Aside from quantifying risk, there is an additional method known as Qualitative Risk. 

The key difference between qualitative and quantitative risk analysis is the basis for evaluating risks. 

Qualitative risk analysis is subjective and based on the assessor. Risks are usually categorized through a scale that estimates probability (e.g., low, medium, high), and generally, they are determined based on the source of it or on the impact on the business. 

Qualitative risk assessments use descriptive and categorical information treatments rather than numerical calculations. You should be able to choose an appropriate risk mitigation technique based on how vulnerable you are to a risk. The data can also be used to determine where you should focus your efforts for future risk assessments.

As mentioned earlier, quantitative risk analysis is based on verified and specific data, while qualitative risk analysis is based on a person’s perception or judgment. Many risk assessments incorporate some elements from both, which provides you with a more comprehensive perspective. 

What are the benefits of Quantitative Risk Management?

The purpose of quantitative risk analysis is to help prevent spending time and resources on mitigating insignificant risks. For example, low organizational threats are risks that are unlikely to happen or cost little or nothing to remedy. On the flip side, you should consider it a higher risk, if the threat to your key systems is likely to occur, and would affect your business adversely, in any manner.

Using quantitative risk management techniques can provide more reliable information. It gives you the information needed to strengthen your risk management strategy and keep it moving forward by accurately communicating to you the controls you need to implement to properly mitigate a risk to your satisfaction.

Quantitative risk management gives you an edge by basing the results on numerical, objective, and measurable data. The window of uncertainty that comes with qualitative assessments is not a factor here. This will increase your organization’s confidence in the results of the assessments. 

As long as the information you have is dependable, using a data-driven approach yields more accurate, usable information.

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

Learn more about Quantitative Risk Assessments

Related Content

Authorization to Operate (ATO)

Authorization to Operate (ATO)

What is an ATO? An ATO is a hallmark of approval that endorses an information system…


What is StateRAMP? In 2011, the Federal Risk and Authorization Management Program (FedRAMP) laid the groundwork…
Segregation of Duties

Segregation of Duties

What is the Segregation of Duties? Segregation of duties (SoD) is like a game of checks…
Skip to content