Cyber Risk Appetite: What it Is and How to Calculate It

A business cannot reap any reward without taking risks. The question is how much risk your organization is willing to take.

A company’s risk appetite helps to define that willingness; it is the amount of risk your organization believes is appropriate for the business objectives it has. For example, if your company prides itself on customer service, you may have a low risk appetite for poor reviews. This would then guide in your risk management strategies as you develop a plan to avoid customer dissatisfaction.

Another term often encountered when thinking about risk appetite is risk tolerance. The two phrases might seem interchangeable, but they are distinct concepts. Where risk appetite is the amount of risk you want to shoulder to achieve business objectives, risk tolerance is the amount of risk you’re actually willing to accept at any given moment in pursuit of those objectives.

Why Identifying Your Risk Appetite Is Important

The biggest benefit of identifying your risk appetite is that it helps you to understand the potential payoff from your risks. The parameters you put in place to decide your risk appetite help your future cyber-integrated risk management efforts to be more efficient. As your business grows and your operational risk management changes, you’ll be able to see how your risk-reward calculations evolve too.

Maintaining a living risk appetite statement also allows you to adapt to new conditions or adjust your risk tolerance for improved growth opportunities.

How to Calculate Your Cyber Risk Appetite

Key stakeholders, senior management, the chief information security officer (CISO), and your board of directors should all be involved in calculating your risk appetite. First, prioritize your top business objectives. Then consider scenarios where your risks don’t pay off: what level of harm will your organization tolerate should the risks not produce beneficial results? Finally, define the expected potential positive effects – that is, the rewards for risk-taking – you hope to achieve.

If your team decides the organization can’t endure the consequences of failure for specific objectives, you should decide on a low-risk appetite. On the other hand, if your business can continue to function on a day-to-day basis with some loss, you may have a higher risk appetite.

It would be best if you communicated with your board of directors to assure that high-level decisions are made according to the risk appetite you put in place. Drafting a risk appetite statement together will help to assure that this process is efficient and enforced.

Creating Your Cyber Risk Appetite Statement

After calculating your cyber risk appetite for each strategic objective within your business, you should write an executive summary of the decision-making process. Include risks your team agreed to and the appetite for each, and the cybersecurity measures (or other internal controls) necessary for risk mitigation while pursuing those objectives.

Treat your cyber risk appetite statement as a living document by returning to it every few months. Revisit your decisions and update as appropriate to allow for new business objectives, changing potential threats, and improved risk tolerances.

How Do You Calculate Risk in Cyber Security?

Cybersecurity risk is the possibility of harm to sensitive data, essential assets, finances, or reputation. Cyber attacks or data breaches are typically to blame for these damages.

Some cyber habits are more serious than others. For instance, the technology risk involved with a website that merely displays static data is smaller than the danger involved with a web app that solicits private information from consumers.

Cybersecurity risk assessments might have a narrow focus or include the entire business, but they always involve many of the same stages and choices. These steps include risk identification, impact analysis, risk treatment (that is, deciding how you want to handle the risk), and risk mitigation. You can implement these elements to provide a risk exposure rating.

What Is a Cyber Risk Score?

Cyber risk scores are valuable tools to help you assess and explain an organization’s existing security posture. Cyber risk scores determine each asset’s severity and inherited hazards, prioritizing which assets should be treated first. You can then organize those results into a risk matrix, to categorize assets into critical, high, medium, and low-risk categories. Typically, the rating includes an executive summary that aids in explaining the total level of risk to non-technical audiences.

For example, you should evaluate the risk score for services such as online applications, wifi, data storage, internet-enabled devices, and physical security. Once you understand the risk scores of your IT assets, you have a roadmap for fixing vulnerabilities and enhancing your overall security posture.

Minimize the Threat of Cyber Risks With ROAR

Reciprocity connects your business with the cybersecurity experts needed to guide you through an efficient and secure automation cyber risk assessment. The ROAR platform and dashboard give you all the data you need to maintain efficient cybersecurity over time. Regular monitoring and shareable reports help you adapt to potential threats and efficiently update your cyber risk appetite statements.

You can learn more about ROAR or schedule a demo.