Calculating risk is similar to attempting to forecast the future; you won’t always be accurate, but with careful planning, you can get some pretty on-target predictions and stay ahead of the curve.
Covid 19 hit us all like a snowstorm on a sunny day and taught the world some hard-learned lessons. One of those lessons was the need for better risk management in business. If the corporate world would have been better prepared for a global disruption with all its repercussions, it would have been an easier few years of survival.
With our increasingly tech-reliant world, coupled with the remote-work trend still lingering even as the pandemic fades into oblivion, and cyber criminals busy as ever carrying out ransomware attacks and developing new attack vectors daily, businesses must address cyber risk as seriously as a classic business risk to forecast the likelihood of security incidents occurring, and prepare for the eventuality with calculated response strategies.
Risk assessments are a means not only to understand the security risks we’re likely to face but also to provide a structured approach to risk management. Without a well-organized process, risks may be overlooked and faulty presumptions may be assumed. A risk assessment process requires transparency and allows for discussion and debate to challenge implicit assumptions.
The Key Steps in Risk Analysis
- Identify the hazards which might affect the system or environment being studied. A brain-storming session to identify all potential hazards should be done at an initial stage. It is important to think beyond events or combinations of events that have occurred to consider those that may occur
- Assess the likelihood or probability that hazards might occur: inputs to this process include history, modeling, experience, corporate memory, science, experimentation, and testing. In practice, events with a very, very low probability (e.g. meteor strike) are ignored, focussing on ones more likely to occur and can be either prevented, managed, or mitigated
- Determine who or what is at risk
- Estimate the vulnerability of that hazard to the entity exposed to calculate the physical or financial impact upon that entity should the event occur.
- Estimate the potential financial or other consequences of events of different magnitudes.
Qualitative vs. Quantitative Risk Analysis
There are two types of risk analysis: qualitative and quantitative.
In a qualitative risk analysis, risk assessments are subjective and work best when they are based on the historical facts and experiences of the risk assessors. Because the accuracy of these kinds of assessments is dependent upon a subjective rating system, assessors need to have industry expertise, and knowledge of your business including strengths, weaknesses, and potential threats. Risks are calculated on an established scale that estimates probability or severity (for instance: low, medium, or high) and presented on a risk assessment matrix (RAM).
Qualitative analysis of risk serves 3 functions:
- Prioritise risks according to probability & impact
- Identify the main areas of risk exposure
- Improve understanding of the relationship between risks
Pros of Qualitative Risk Analysis
Opting to form your risk management strategy around qualitative assessments offers several benefits.
- Subjectivity is sometimes a plus in that it allows assessors to analyze risk exposures based on their experience and industry knowledge.
- In general, qualitative assessments are easier and less labor-intensive for companies to implement.
- You can achieve this by categorizing risks by their source. This is important when it comes to prioritizing risk areas and treatment schedules.
- Qualitative risk analysis can also deepen understanding and relationships between risks, by using a categorical method to measure risk. When studying risk qualitatively, assessors discover much more than risk severity and estimated likelihood. They also can better visualize conditions for risks and indirect impacts. All of this helps build a clear picture of the risk landscape.
Once you understand how vulnerable you are to risk, and which areas should be prioritized, you can choose a relevant risk mitigation strategy:
- Risk avoidance
- Risk acceptance
- Risk mitigation
- Transfer risk
Bottom Line of Qualitative Risk Analysis
A qualitative risk assessment should help you prioritize and manage risk better as well as allocate your budget and resources more wisely. By using your qualitative assessment and categorization of risk impact and likelihood, you can prioritize risk effectively. It should be stressed that qualitative assessments lack a component of accuracy that is found in quantitive risk analysis. This should be understood going into the process.
Quantitative Risk Analysis
Where qualitative risk assessments use knowledge and experience to determine risk probability, a quantitative risk assessment relies on objective, measurable data to provide insights into your risk management process. A quantitative risk analysis is objective and relies on data, making its thoroughness and accuracy subjective to the data available.
Quantitative assessments attach numerical values, usually in monetary form, to the risk. By using data to determine the probability of a risk scenario occurring and numerical values to determine risk impact, a quantitative risk assessment provides an accurate reflection of your threat landscape.
Quantitative assessments require many data requirements to be successful. For example, analyzing risk scenarios may require assessors to determine the value of assets. A layman will not be able to come up with an accurate numerical value of a given asset, and experts are needed to calculate asset value appropriately.
Pros of Quantitative Risk Analysis
Quantitative risk assessments provide you with the data you need to accurately calculate future outcomes and get on-target estimates of the likelihood of meeting your objectives. Armed with this valuable information, your risk management strategy can confidently move forward. by communicating to you any contingency you need to properly address a risk to your satisfaction.
By assigning a numerical value to the likelihood of a risk’s occurrence and the impact of its occurrence, you come out with a data-driven picture of your threat landscape and a clear path to risk prioritization.
A quantitative risk assessment can produce more realistic targets than a qualitative assessment, provided the information you have is reliable. A data-driven strategy produces more accurate, useful information than qualitative judgments, which rely on an assumed likelihood.
Opting for a Quantitative Approach to risk assessment provides several benefits.
It is a known fact that getting executive leadership to agree with a risk quantification initiative isn’t always a smooth process, but research shows that a quantification approach to risks enables cyber-related decision-making through the sharp lens of experienced business strategists. Regardless of industry or type of risk, quantifying risk scenarios makes good strategic sense. By properly implementing quantitative cyber risk assessments, the benefits are evident.
- Executives are empowered in their cyber security roadmap planning and enable the building of a strong business case to present to stakeholders and investors.
- Information security leaders can present and explain, in a communicable language, the strongest cyber threats facing the enterprise.
- Clear visibility into the most imposing and expensive threats facing the company is possible.
- Business and security teams know where to focus their cyber investments, and how to reduce risk exposure in line with business objectives. Overreacting or under-reacting to potential risk events is less likely with CRQ.
- Cyber security teams can concentrate their efforts on ensuring the business has enough controls and processes to defend against critical risks and make additional investments if indicated by risk quantification results.
- Time-consuming debates and confusion about what the top cyber risks are and which technologies will address them with the greatest return on investment (ROI) are eliminated.
Bottom Line of Quantitative Risk Analysis
Quantitative risk analysis takes a scientific approach to risk management and facilitates communication with investors and stakeholders. However, it’s important to remember that a quantitative assessment is only as good as the data you provide. In the absence of key data points, it may be worth performing a qualitative assessment. An integrated risk management software can help you perform quantitative risk analysis and manage the entire process.
Quantified Risk Analysis with Centraleyes
Centraleyes’ compliance and risk management platform streamlines the process of quantifying your cyber risk exposure. Our powerful platform calculates risk level using an additive type of formula that outputs an overall risk score based on:
- The status of the 5 NIST functions: identify, detect, protect, respond, recover
- Value of corporate assets
- Risk appetite, with the option to compare risk scores based on selected tier level
- Your risk exposure as compared to the cyber insurance policy coverage
These factors are all interactive, and risk analyzers can go deeper into the metrics to see what components factor into the final output.
At Centraleyes, we believe that third-party and fourth-party risk scores should factor into your organization’s overall risk score. Using advanced vulnerability scans of vendor domains and prepopulated questionnaires, you can gain insight into each vendor’s risk posture on an individual basis, and identify areas that need security fortification in your supply chain.
Book a demo today to move forward with a comprehensive risk assessment!