For many years and across industries, enterprise risk management (ERM) has always been an important part of any successful business operation. Organizations of all types and sizes face a number of external and internal factors that make it uncertain whether they will achieve their goals; ERM can bring that uncertainty to lower levels.
Understanding the risks to your organization can help you make better decisions about how to reduce those risks; that’s where risk management comes in. Ultimately, your risk management system aims to use the information your organization collects about its risks to help decision-makers understand the best course of action to deal with those risks over the long term.
Before you can reduce something, however, you first have to measure it. An important part of the risk management process is the risk assessment – a multi-step process that aims to identify, analyze, and catalog all the potential risks to your business and their significance.
During the risk assessment phase of risk management, your organization will also need to do something called security risk analysis. Although people sometimes conflate the terms “risk assessment” and “risk analysis,” always remember that risk analysis is just one part of the whole risk assessment process.
In this article we’ll take a closer look at risk assessment and risk analysis, to better distinguish them from one another. Then we’ll suggest some risk analysis tools and techniques that can help make the process easier, as well as some of the benefits that come along using them. Finally, we’ll introduce an automated solution that can make the risk analysis process more convenient and efficient.
What Is Risk Analysis?
Risk analysis is one step in the overall risk management and risk assessment process, but it’s a critical one. During a cybersecurity risk analysis, your organization will need to examine each risk to the security of your organization’s information systems (devices, software, hardware, apps, and so forth), and then prioritize which risks need to be remediated first
Simply put, risk analysis deals with identifying risks and potential threats to your organization’s operations and processes, and then analyzing them to measure their severity of potential impact and likelihood of occurrence.
The goal of a risk analysis is to provide decision-makers in your organization with the best possible information about risks to the organization, and their options for managing those risks. In this sense, risk analysis is inherently about looking toward the future. Stakeholders want to know what will or might happen in the future, and what they should do about it.
To unearth this information, risk analysis seeks to deconstruct complex risks into clearer, more readily analyzed components so that we can make more reasoned judgments about prioritizing them.
Once a risk analysis is complete, you should have a better understanding of where to allocate your resources to prevent cyberattacks; and, should a security incident occur, which systems to prioritize so you can continue business operations the least amount of disruption.
Obstacles to Risk Analysis
Several obstacles to risk analysis and risk management need attention.
First, understand that at its core, risk analysis is never perfect. Even the most precise risk analysis is open to error simply because there is no way to predict the future with 100 percent certainty. Additionally, data is never perfect. Together, these uncertainties make it difficult to measure risk in a way that contributes to more meaningful decisions.
That said, risk analysis should not be dismissed as a waste of time. Even if you don’t use a risk analysis model to guide you, you’re always performing some kind of risk analysis to inform decisions – no matter how informal that process might be. So you might as well choose a risk analysis method that’s been proven to be effective.
Fortunately, numerous risk analysis frameworks and standards exist that can help your organization to meet its unique business needs.
Risk Analysis Frameworks
The early cybersecurity environment gave rise to multiple risk management tools, many of which are still used today. These frameworks and standards are designed to clarify parts of the risk management process. Some examples include:
- National Institute of Standards and Technology’s (NIST) Special Publication 800-30, Rev. 1, Guide for Conducting Risk Assessments;
- International Standardization Organization’s (ISO) ISO/IEC 27001:2013, Information Security Management;
- And to supplement this framework, ISO also created ISO/IEC 27005:2018, Information Technology – Security Techniques – Information Security Risk Management.
Together, these frameworks represent a collection of best practices as opposed to a singular approach to cyber risk management, risk assessment, and risk analysis. Any one of them will serve an organization well. Moreover, the steps within each of these frameworks are essentially the same.
Steps to Perform a Risk Analysis
As we mentioned above, risk analysis is just one step in the risk assessment process. For this reason, we’re going to begin by outlining the basic steps within the risk assessment process, and then look more closely at the risk analysis process itself.
To perform a risk assessment, organizations need to do the following:
- Identify threats, vulnerabilities, and risks.
- Understand the impact of these threats, vulnerabilities, and risks on the organization.
- Create or use a model for risk analysis.
- Sample the model to understand the threats, vulnerabilities, and risks more fully.
- Analyze the results obtained from the above steps.
- Implement a risk management plan to manage the threats, vulnerabilities and risks based on the results of the risk analysis.
Although steps three through five are associated with risk analysis, step three is especially relevant to risk analysis and will ultimately determine the success or failure of any of the subsequent steps.
After you consider all the effects of all identified risks on your business’s reputation, finances, continuity and operations, you need to decide how you will go about measuring those risks. Typically there are two types of risk analysis and risk assessment available to organizations: qualitative risk analysis and quantitative risk analysis.
Whether you employ qualitative or quantitative methods for risk analysis, the analysis itself should consider two main factors: probability and impact. Probability is the likelihood of an event occurring; impact is the operational, reputational, or financial damage of that event to your organization.
Together, these two elements will help you determine the severity of each potential risk so that you can develop strategies for each in accordance with your security posture and risk tolerance.
Qualitative risk analysis methods apply subjective assessment of risk occurrence likelihood (probability) against the potential severity of the risk outcomes (impact) to determine the overall severity of a risk. Quantitative risk analysis methods use available relevant and verifiable data to produce a numerical value, which is then used to predict the probability of a risk event.
Each method has its advantages and drawbacks, but both can be useful in the right context. The best risk management programs will use a combination of qualitative andquantitative risk analysis techniques and tools to help organizations generate the most reliable data for which to base informed decisions about corrective actions.
Best Risk Analysis Tools
To perform risk analysis, organizations rely on a number of time-tested tools, techniques, and methods.
Qualitative Analysis Tools
Most often, qualitative risk analysis rates risks on some sort of high/medium/low or very likely/possible/not likely scale. This type of risk analysis certainly has its place in risk management, and for that reason it’s usually the preferred approach for measuring risk.
The Delphi Technique is a form of brainstorming for risk identification. What sets this risk analysis tool apart from other less formal approaches is the use of expert opinion to identify, analyze, and evaluate risks on an individual and anonymous basis. In doing so, a group of experts can come together to create a single risk register that’s subject to continuous review and consensus between the experts.
The Structured What-If Technique (SWIFT) is a simplified version of a Hazard and Operability Analysis (HAZOP), or a structured and systematic technique for system examination and risk management. Using SWIFT analysis, your organization can apply a systematic and team-based approach to consider how any proposed changes might affect a project through a series of “what if” considerations.
Decision Tree Analysis
A Decision Tree Analysis is similar to an Event Tree Analysis, but a Decision Tree does not provide a fully quantitative output. Most often, this type of analysis tool is used to help determine the best course of action when there is uncertainty in the outcome of possible events or proposed plans.
A Decision Tree starts with an initial proposed decision, and then attempts to map all the different pathways and outcomes that might result from events occurring after the initial decision. Once all the pathways and outcomes have been established and their respective probabilities have been evaluated, your organization can select a course of action based on a combination of the most desirable outcomes, associated events and probability of success.
Bow-tie Analysis is one of the most practical techniques available for identifying methods for risk mitigation. In Bow-tie Analysis, you start by looking at a singular risk event and projecting it in two directions. On the left, you’ll list all the potential causes of the event; on the right, all the potential consequences.
Using this chart, it becomes possible to identify and apply mitigation strategies to each of the causes and consequences separately. This allows you to mitigate both the probability of the risk occurring and the subsequent impacts, should the risk occur.
The Probability/Consequence Matrix is the gold standard for establishing risk severity in qualitative risk analysis today. Most of the risk analysis frameworks and standards suggest this technique as the preferred method for measuring risk due to its simplicity and digestible nature.
Risk matrices (also called risk heatmaps) all do essentially the same thing: provide a practical means of assessing the overall severity of a risk by multiplying the likelihood of a risk occurring against the impact of the risk, should it occur. By ranking risk probability against risk consequence, organizations are better able to determine not only the overall severity of the risk, but also the main driver of the risk severity, be it probability or consequence.
Ultimately, this information is used to help identify suitable risk mitigations to manage the risk based on the prominent drivers of that risk.
Quantitative Analysis Tools
While qualitative risk analysis can be useful in day-to-day operations, it can only go so far to produce tangible results that are based on mathematical measurements. For this reason and more, many standards and frameworks now recommend augmenting the traditional qualitative risk management process with more quantitative methods for analysis.
Today, the Open Group FAIR model is the foremost quantitative model designated as an international standard, and has formed the foundation of many enterprise implementations of quantitative risk analysis.
Cyber Risk Quantification
Cyber risk quantification (CRQ) is a method for risk analysis that is aimed at generating the most reliable data to make decisions framed in monetary terms. To quantify risks, organizations can employ a number of techniques that are based in mathematics and statistics to run simulations and obtain data about risk scenarios.
Some methods use Monte Carlo Simulations while others use Bayesian methods. Either way, these techniques rely on ratio scales to generate information about risks as opposed to nominal and ordinal scales used in qualitative methods.
Although CRQ is relatively new to cyber risk management, using numerical calculations to inform decisions is nothing new. In fact, it’s the most practical and widely accepted approach to the majority of measurement sciences. Adding CRQ to your risk management practices is no longer considered a leading edge best practice, but an important part of modern cyber risk management.
What Are the Benefits of Using Risk Analysis Tools?
The best way to understand and manage your risks is to use existing tools, techniques, and practices to protect your organization’s most valuable assets from harm. Ultimately, better informed decisions are more meaningful decisions.
One obvious benefit of using a risk analysis tool is the long-term cost reduction. By identifying and preventing risks before they do harm, you’re likely to reduce a number of operational costs as well. After all, restoring or restructuring your information technology infrastructure is much more expensive than developing preventative measures before a risk occurs. And, tighter controls drive more consistent processes and higher quality – a winning situation for all.
Risk analysis tools can also make it easier to meet compliance requirements. By using frameworks and standards that recommend specific techniques, you’re more likely to ensure that you’re compliant with those standards. Risk analysis can also make the auditing process more streamlined. Being able to trace your decision-making process based on acceptable tools and techniques for risk analysis will smooth the path to provide evidence for an external audit.
Finally, risk analysis tools can help take the pressure off your IT teams. Using a defensible model to analyze risk takes a lot of the guesswork out of the process, leaving your team members to focus on bigger and better things.
For even less pressure, we recommend turning to an automated solution – one that can make risk management and risk analysis worry-free.
Manage Risks With Reciprocity ZenRisk
Clearly risk management has many moving parts. Moreover, there are ever-evolving cyber threats to consider, as well as constantly changing compliance standards to meet. An automated software tool can help you rise to the challenge.
Reciprocity ZenRisk is an integrated cybersecurity risk management solution designed to provide you with actionable insights to gain the visibility you need to stay ahead of threats and clearly communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies risks, threats, and controls for you, so you can spend less time setting up the application and more time using it.
A single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way that’s framed around their priorities, keeping your risk posture in sync with the direction your business is moving.
Reciprocity ZenRisk will even notify you automatically of any changes or required actions, so you can be on top of your risk posture like never before. Eliminate time-consuming, manual work and streamline collaboration by automating workflows and integrating with your most critical systems.
Plus, Reciprocity ZenRisk is seamlessly integrated with Reciprocity ZenComply so you can leverage your compliance activities to improve your risk posture with the use of AI. Built on the ZenGRC, the Reciprocity product suite gives you the ability to see, understand and take action on your IT and cyber risks.
Now, through a more active approach, you can give time back to your team with Reciprocity ZenRisk. Talk to an expert today to learn more about how the Reciprocity Product Suite can help your organization mitigate cybersecurity risk and stay ahead of threats.