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Cyber Risk Quantification, Cyber Risk Management Frameworks

Contextualize Quantified Cyber Risk With A Risk Appetite Statement

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Now more than ever, CISO’s are being tasked with delivering hard metrics around an enterprise’s technology and digital risk. While this is nothing new for seasoned IT professionals, the challenge here lies in providing these metrics in a way that is applicable and meaningful to the rest of the C-suite, the CEO, and the Board. The first step in this process is contextualizing the risk data generated by understanding where it fits in the general enterprise risk profile as well. This contextualization begins with a risk appetite statement. 

Brief Overview of Risk Appetite Statements

Risk appetite statements are nothing new - as more enterprise organizations have recognized the diversifying forms of risk that their organization faces (financial, operational, etc.), they have realized the importance of a risk appetite statement. A documented method for the whole organization to understand how to make decisions about new risks using risk assessments. According to Gartner, the risk appetite definition describes this as a tool that is a starting point for discussions around risks that organizations face every day. It enables leaders to initiate business actions while considering projected risks. More commonly, risk appetite statements are used in financial institutions but are also starting to be seen in other industries. 

We can define risk appetite statements as the potential amount of risk an organization is willing to accept to achieve business success. Risk appetite and tolerance go hand-in-hand and provide nuance to the different types of risks.

Cyber Risk Is The Newest Addition

While business leaders are well adjusted to managing risk events in the physical world, cyber risk quantification is a whole new world. While we are still starting to see more data supporting cyber risk, that cannot keep organizations from adding those digital risks into the mix. However, the lack of historical data on cyber risk and risk descriptions combined with a more significant lack of understanding of cybersecurity, in general, has left many organizations’ project management approaches to cyber risk siloed within IT.

What organizations are challenged with now, is to embrace cyber risk quantification and embed it into their risk registers or face the same negative impact as Equifax or Wells Fargo.

Rolling Cyber Risk Into Your Risk Appetite Statement

From a management standpoint, directly reporting cyber metrics with no context further distances information security from the organization's business side. The metrics that technical leaders use to measure the health of an organization just do not transfer to business-side conversations. Gartner states of board members surveyed, 80% value "risk posture" as the most critical metric for reporting. Less than 20% of CISOs thought the same.

Technical leaders are often tempted to get lost in the weeds - to spend time on details and deliver information that does not fit into the context of what C-suite executives and the Board are looking for. For business-side leaders and CISOs alike, integrating cyber risk into an enterprise risk appetite statement creates a single source of truth for both parties to know what the other expects of them.

Risk Statement Examples and Why They Work for Cyber

From Gartner - National Bank

<The Bank> faces a broad range of risks in its responsibilities as a central bank. Acceptance of some level of risk is often necessary to foster innovation and efficiencies within business practices. The risks arising from our policy responsibilities can be significant. These are managed through processes emphasizing the importance of integrity, maintaining quality staff, and public accountability.

<The Bank> is also exposed to some significant financial risks, mainly due to it holding foreign exchange reserves. In terms of operational risks, we have a low appetite for risk and make resources available to control operational risks to acceptable levels. <The Bank> recognizes that it is not possible or necessarily desirable to eliminate some of the risks inherent in its activities.

Why it works

This model risk statement gives insight into the enterprise organization’s risk approach as a whole. Specifically, the statement highlights critical and reasonable risks that are necessary to accept to participate in the industry. As we all know, there are specific risks to specific sectors. Although cyber risk is the glue that ties many organizations together - all organizations are hitting the point of accepting more digital risks. For CISOs, a statement like this helps them, and their teams understand where resources need to go based both on the priorities of the organization as a whole and specific to project objectives.

From Gartner: Local Credit Union

The organization has a tolerance for risk, allowing it to achieve its business objectives in a manner that is compliant with the laws and regulations in the jurisdiction in which it operates.

The organization has a low-risk appetite for the loss of its business and customer data when a cyber event occurs. The organization has a medium risk appetite for physical information security assets and will track assets greater than US$2,000. Information assets will be protected per the organization's data classification framework. The organization has a high-risk appetite for access controls. All access to the organization's mission-critical systems will be controlled via biometric authentication.

Why it works

This sample statement further hammers the importance of certain risks over others. It grants insight for the whole organization into what the teams shouldering this accepted risk need to incorporate into their goals and objectives for the enterprise. Statements like these contextualize specific events or conditions within the risk landscape as a whole for any given team - in our case, cybersecurity and enterprise risk management teams.

Cyber Risk Appetite Statement Example

Using the previous examples as a template, we can look at the following as a template for a cyber risk appetite example: 

The organization has a tolerance for risk, allowing it to achieve its business goals and objectives in a manner that is compliant with the laws and regulations in the jurisdiction in which it operates. The organization has a [low/medium/high] appetite for the loss or breach of its business and customer data in pursuit of its goals. The organization has a [low/medium/high] risk appetite for physical information security assets and will track assets greater than [dollar amount]. Information assets will be protected per the organization’s data classification framework [use examples if you wish]. The organization has a [low/medium/high] risk appetite for access controls. All-access to the organization’s mission-critical systems will be controlled via [2FA/MFA/biometric]

Contribution to an Enterprise Risk Appetite Statement

As we've seen, turning a blind eye to cyber risk is no longer an option. Whether the organization already has a risk appetite statement or if it is still undefined, CISOs need to be actively involved in developing and iterating on that statement - sharing their knowledge of cyber and the identified risks associated with enhancing and contextualizing these risks for the rest of the organization. 

If you have any questions about how to write a risk statement, or how IRM can help enable your organization's cybersecurity plan and keep it prepared in uncertain events continuously, give us a call at 1 (800) NIST-CSF or click here to learn more.

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