With so many threats facing modern companies, it can be difficult to know which threats should be addressed first. Risk quantification is a method that provides you with a numeric representation of your risks, which in turn allows you to prioritize those that are the most likely to happen or could cause the most damage.
Not all threats can be measured in this way. Quantifiable risks are those that can be definitively expressed in monetary value (say, lost profits), as opposed to non-quantifiable or qualitative risks, which are more anecdotal in nature. Performing a quantitative risk assessment (QRA) can help you determine what risks your company is facing and how they can be measured.
While risk quantification originated in the financial industry, it is becoming increasingly common in cybersecurity. Much as a financial institution will take risks to gain profit, cyber risks frequently arise during periods of growth and expansion for a company. Risk quantification can be a beneficial strategy for many companies, and knowing the pros, cons, and best practices will help you determine whether it’s a viable option for your organization.
Why Quantifying Risks Is Important
Quantifying risk can be a useful tactic for many organizations. Having definitive metrics at your fingertips is a great way to explain your risk landscape to stakeholders and board members. This kind of information can be invaluable for funding, mergers, or determining what risks should be prioritized as your company grows and expands. It can also be helpful to have a “common language” to express your company’s risk mitigation efforts to all staff members.
Having quantifiable data at your disposal is also useful to chart your progress over time. With this data you’ll have definitive proof about whether your risk management is sufficient and that your cost estimates are correct. Data doesn’t lie; it will be useful in creating your risk register and developing a successful risk management program at your company.
Challenges of Risk Quantification
The risk quantification process can be difficult for some companies. The project cost is often higher than alternative methods, and some organizations don’t have the resources to execute the assessment process properly.
The technique also has some drawbacks. It can be tempting to depend on proven data and formulas, but doing so can result in false correlations and equivalencies that will misdirect your security efforts. The data collection used for quantification is also based on past events, and as such it can’t always account for new risks that may arise in the future.
This rigidity may keep you from understanding the full picture and result in misplaced complacency. Focusing too much on predicting likely risk events can also result in a “black swan event” — a statistically unlikely event with greater than predicted financial repercussions.
You may have recognized a pattern here: that having too much faith in the numbers can cause you to ignore the more human element of risk assessment. You will never be able to predict your risks with complete accuracy, and it will be critical for you to remain vigilant in the face of arising threats to protect your company’s data.
How to Quantify Risks Successfully
Risk quantification in cybersecurity is a new and quickly growing field, and determining best practices can be a challenge. When deciding whether risk quantification will be an appropriate choice for your company, consider the following:
Use a Model That Meets Your Needs
Any model your company uses will seek to calculate the amount of loss that each risk could potentially cause, also known as Value at Risk, or VaR. There are, however, numerous ways to model risk and arrive at your desired datasets, and the differences among these models should factor into your decision making.
One of the more common models is the Monte Carlo analysis (or Monte Carlo simulation) which allows you to explore all of the possible outcomes of a specific risk. Other models exist too, and you should perform due diligence to assure that the methodology you’re using will produce your desired results.
Understand That Quantifying Risk Is One Tool Among Many
Just because something could happen doesn’t mean it’s likely to happen, and the biggest benefit of quantification is the ability to rank and prioritize your most significant risks. That said, risk quantification can’t be your entire strategy. By using the predictions from your quantitative risk analysis, you can create a risk management program that will allocate your resources correctly and give you the strongest possible defense in the fastest possible timeframe.
Communicate Risk Throughout Your Organization
Once you’ve determined which risks are the most critical, you need to make sure everyone at your company — across all operating units, from top to bottom — understands that information. The risk management process is most successful when it’s fully integrated and when everyone on all levels understands which risk responses are most pressing and which losses are the most important to prevent.
Protect Your Business from Cyber Risks with ZenGRC
If you’re unsure how to integrate risk management throughout your company, ZenGRC can help. This streamlined and automated software allows you to see your entire risk and compliance program at a glance, keeping your company one step ahead of hackers and regulatory requirements alike. Schedule a demo today and learn more about how ZenGRC can help you create an operational risk management program that works for you.