Risk Quantification: Understanding Key Elements, Models, & Challenges
Anwita
Jul 23, 2024
Cloud-hosted companies are facing a number of challenges – increasing cloud adoption, digital disruption, increased regulatory practices, broken or mismanaged controls, and more.
All these are adding a list of high risk items, but realistically speaking, it is not possible to address it all and if everything is important, then nothing is important. This has created the need to quantify risks and prioritize them based on what’s important. But what is
risk quantification and how does it work?
This article explores popular risk scoring models, key challenges to quantity risks, and how to overcome them.
TL;DR
| Risk quantification is a practice of using numerical values to measure impact of vulnerabilities on business operations and cost impact. |
| The elements of risk quantification include identifying risks, analyzing their impact, and planning to minimize the impact. |
| Three most popular frameworks for quantifying risks are NIST SP 800-37, ISO 27005, and the FAIR standard. |
| Challenges associated with risk quantification include choosing the right framework, poor management of evolving risks, and data evaluation process. |
What is risk quantification?
Risk quantification is the process of using numeral values to measure the impact of vulnerabilities based on their likelihood of occurrence and level of impact. An in-depth understanding of the risk landscape helps IT teams prioritize threats with the highest probability of translating into an incident, comply with regulatory obligations, and make data-based decisions to allocate budget.
“For operational plans development, the combination of threats, vulnerabilities, and impacts must be evaluated in order to identify important trends and decide where effort should be applied to eliminate or reduce threat capabilities; eliminate or reduce vulnerabilities; and assess, coordinate, and deconflict all cyberspace operations”.
- The National Strategy for Cyberspace Operations, U.S. Department of Defense
How does risk quantification differ from cyber risk quantification?
In the domain of business risks, risk quantification has a broad scope that covers a wide range of risk – operational, financial, computer security, and more. So the difference between the two is that cyber risk quantification focuses only on cyber security risks while “risk quantification” is the umbrella term used to describe any type, including cyber risks.
Core elements of risk quantification
The core elements of risk evaluation and quantification involve risk identification, analysis, and implementation planning. Let’s explore these aspects in detail.
Identify
Risk identification starts with understanding your infrastructure—assets, systems, incident history, vulnerabilities, and so on. When your internal and external stakeholders know the scope of your risk quantification goals, it helps to establish a common language to plan ahead.
The risk identification method entails the following:
- Create a risk identification plan detailing each risk, covering aspects like what can happen, at what point they can happen, how it can happen, and its effect.
- Conduct a deeper investigation into the risk to evaluate how it can affect your business objectives and operations.
- Verify your risk assumptions and findings with internal and external stakeholders. Finalize the statement of your findings.
Analyze
Once you have identified the risks, conduct an assessment of their impacts to know if it has a chance of translating into a successful threat event. Due to budget and time constraints, it is realistically not possible to minimize all your risks to an absolute zero.
Using the result of the risk assessment, you can decide what risks to transfer, which ones to accept, which to reject, and which to reduce. A risk analysis exercise also helps security teams determine the appropriate controls to implement in order to minimize the loss from accepted or rejected risks.
Plan
Risk planning is a key element of quantifying risks as this tells you what to prioritize based on its impact. The impact is calculated in terms of financial and operational loss.
Financial risks include prospects falling through, long-term negative brand image, and cost to mitigate them. Operational risk, on the other hand, includes your business’s inability to perform its core functions and a minor to significant hit on the engineering team’s bandwidth.
In the world of risks and uncertainty, prevention is better than cure. We recommend assuming the worst case scenario so you can prepare to mitigate it to acceptable levels.
Best practices for risk quantification
Following risk quantification best practices improves your overall cyber risk management. It boosts your cybersecurity objectives and helps safeguard your organization against cyber threats more effectively. A few essential best practices for risks evaluation and quantification are listed below:
Focus on critical assets
To ensure business continuity, you must prioritize critical assets. This involves identifying and quantifying risks that could exploit critical assets. Then, rate assets based on their criticality using risk matrices to visualize risk severity.
Make sure your security team works on these high-priority threats for better preparation against potential attacks. Focusing on key areas streamlines the process and helps allocate the right resource at the right place.
Keep stakeholders in the loop
Communicate your risk quantification efforts with your team, upper management, and stakeholders to ensure that everyone is on the same page. This fosters a sense of shared responsibility and ownership of cybersecurity initiatives.
Moreover, it encourages support and expertise from relevant security departments, as they can provide valuable insights and assistance.
Conduct regular updates
Continuously review and update your risk quantification method to adapt to evolving threats in your cyber security landscape. Implement mechanisms to assess third-party relationships and other risk indicators. Also, stay updated about the latest cyber threats and trends in your industry and to be prepared to tackle potential risks.
Use an automated tool or software
Use a tool or software that integrates your data with the security software. An automated system with continuous monitoring features to effectively manage cyber risk and perform regular risk assessments is preferrable.
Experience the Sprinto advantage: Sprinto’s compliance automation and risk assessment solution enhances your efforts with its entity-level continuous monitoring capabilities. Its user-friendly interface and customizable policy templates simplify cyber risk measurement according to various compliance standards. It monitors your IT environment, identifies vulnerabilities, collects evidence, and suggests corrective action plans to address non-compliance issues.
Enhance your CRQ program with Sprinto. Talk to our experts today.
Quantitative vs qualitative approach to risk quantification
While qualitative analysis works fine in most business scenarios, it has limitations. It is a faster way to assess risks across regular business functions. However, if your business is data oriented, quantitative is a better choice as it helps you get an objective, measurable, and realistic view of your risk posture.
The table below illustrates the limited scope of application for qualitative models. This is not to vilify this approach, but highlight the limitations of its use for various use cases.
| Qualitative | Semi-quantitative | Advanced quantitative | |
| Reporting and disclosure | Yes | Yes | Yes |
| Planning, budgeting, resource allocation | No | Yes | Yes |
| Stress testing | No | Yes, but limited application | Yes |
| Optimizing controls | No | No | Yes |
| Mitigation decisions | No | No | Yes |
| Advanced mitigations | No | No | Yes |
Risk quantification standards and frameworks
Risk quantification frameworks guide organizations to create an airtight cyber defense mechanism that protects systems from malicious activities. It helps security teams identify areas of improvement, enabling them to maintain a cybersecurity posture and adapt to the changing landscape.
We discuss some of the most popular ones that offer a detailed guide on how to quantify risk:
NIST SP 800-37
The NIST SP 800-37 (Risk Management Framework) guides organizations that process sensitive, critical data in their information systems on assessing risks. It is designed to help them to reduce risks to an appropriate level using a structured and flexible approach. The guideline consist of six steps:
- Prepare for the assessment setting the right context and infrastructure wide perspective to determine the priorities
- Select the right security security controls to reduce the identified risks to an acceptable level
- Implement the selected controls and define how it will be deployed. Update the implementation information if you make any changes
- Assess the controls to evaluate if they are functioning and operating as intended, and their effectiveness in reducing risks to a desired level
- Authorize the systems and controls based on your evaluation that the level of risk is acceptable
- Monitor your systems and controls on an ongoing basis to check the effectiveness of controls, keep track of changes, and conduct risk assessments
ISO 27005
ISO/IEC 27005:2022 assists organizations of all types to address information security risk requirements in ISO 27001, conduct risk assessments, and mitigate risks. It addresses both qualitative and quantitative risk analysis methods and recommends using either one or a combination of both, depending on the specific scenario.
The guideline uses a sample risk matrix like this likelihood of an incident scenario and maps it against business impact. To calculate quantitative risk, you can gather data from various sources. The quality of this method relies heavily on the accuracy of the numerical values.
| Likelihood of incident scenario | Very Low (Very unlikely) | Low (Unlikely) | Medium (Possible) | High (Likely) | Very High (Frequent) | |
| Business impact | Very low | 0 | 1 | 2 | 3 | 4 |
| Low | 1 | 2 | 3 | 4 | 5 | |
| Medium | 2 | 3 | 4 | 5 | 6 | |
| High | 3 | 4 | 5 | 6 | 7 | |
| Very high | 4 | 5 | 6 | 7 | 8 |
FAIR standard
The Factor Analysis of Information Risk model framework for risk quantification helps businesses analyze, understand, and measure risks in IT and other disciplines.
This model combines three aspects of risk—personal, policies, processes, and technologies to reduce risks to an acceptable level of loss exposure.
To build a risk foundation using the FAIR model and meet its requirements, you should familiarize yourself with five elements:
- Build a cost-effective program that meets FAIR’s definition of risk management (combination of personnel, policies, processes and technologies that enable an organization to cost-effectively achieve and maintain an acceptable level of loss exposure)*
- Make well-informed decisions around risk management
- Compare the risk decisions to prioritize high value vulnerabilities
- Make meaningful measurements that can be communicated to stakeholders
- Use accurate models of risks and risk management based on actual scenarios that is scalable
Challenges of risk quantification
If you want to implement a risk quantification program from scratch, you might face several roadblocks such as:
What’s the right framework for me?
With so many risk quantification methods and frameworks, you may find yourself stuck at the very first step. There is no subjective solution to this problem as it depends on the nature of your risks, organization’s complexity, existing risk status, and regulatory obligations, just to name a few.
What do I change and how often?
As your business scales, so does the magnitude of security risks. As you add new technology stacks and collaborate with more third party vendors, your risk landscape inevitably changes.
This raises new challenges, leaving security teams in a state of uncertainty—what risks to update? What is the frequency of risk assessment? Is there a need for new technologies to keep pace with the dynamic risk landscape?
What data or risks should I quantify?
To understand the risk landscape, security teams should be looking into the right sources. As the risk quantification techniques rely on the right data sets, a lot of uncertainty lies with making the right selection. This creates the way for another problem—analysis paralysis.
When teams don’t know where to start, they often end up quantifying every identified risk. This is unnecessary and creates more problems than it solves for—more bandwidth, higher costs, and wrong decisions.
How can you address these challenges?
If you’re in the SaaS landscape and are seeking to strengthen your cybersecurity and advance your risk management practices then risk quantification is a crucial step forward. But many leaders struggle to streamline their risk quantification program. This is where risk management tools like Sprinto come in.
Sprinto helps you:
- Continuously and accurately monitor your risk environment, flag suspicious activities, and recommend corrective actions for each failing control
- Collect risk information against security risk frameworks of your choice like NIST, ISO 27001, and more into a single dashboard
- Automate the end to end risk identification and quantification process to reduce the time to implement security controls, and improve the compliance posture
- Eliminate guesswork related to assessing risk value, tie your risks to your business’ reality, and get 360 degree view and all-round visibility into your IT assets
- Gain access to a pre-built risk library that helps you scope out risks, add custom risks based on your needs, and assign impact scores based on likelihood of recurrence Build and maintain a comprehensive risk register specific to your requirements
- Evaluate risks using industry benchmarks to know the real impact instead of using guesswork to determine severity
- Capture the status of security risks and controls using detailed yet simple understand reports based on real-time data. Identify risk patterns, and make accurate data backed risk decisions
Sprinto can do much more. Connect with our experts today to know how we can help you.
FAQs
What is risk quantification in ERM?
Cyber risk quantification aims to systematically assess, measure, and prioritize potential cybersecurity risks within an organization. Through cyber risk quantification, businesses can make the most informed decisions, use resources efficiently and effectively, and take specific measures to improve cyber resilience.
How do you quantify cyber risk?
You can quantify cyber risks using the formula: CyberRisk = Threat × Vulnerability × Impact.
This formula combines the possibility of a cyber threat, system vulnerabilities, and the impact of a successful attack. These factors, when multiplied, will give cyber risk to each organization, which will serve as a basis for security measure prioritization and allocation of resources.
How do you quantify risk exposure?
You can quantify risk exposure by identifying critical assets and potential threats, assessing vulnerabilities, estimating the likelihood of threats exploiting these vulnerabilities, and determining their impact. Use the formula: Risk = Likelihood x Impact.
