What is Cyber Risk Quantification? An Analysis of Financial Impact | UpGuard (2023)

The threat landscape is expanding and security professionals are barely keeping up. On a daily basis, CISOs and cybersecurity staff need to contend with new malware variants, data breach attempts, ransomware attacks, zero-day exploits - all while ensuring uninterrupted dedication to vendor risk mitigation efforts.

With so many cyber threats testing your cyber resilience at once, where should you focus your cybersecurity efforts?

One method is to assign each risk a criticality rating to help security teams prioritize risks that are most detrimental to security postures.

While this does offer a significant level of protection against data breaches, security professionals may still struggle to decide which threat to address first if multiple are assigned the same criticality level.

A more effective approach would be to compare the potential financial impacts of each cyber threat and the probabilities of their occurrence - a strategy known as Cyber Risk Quantification.

Cyber Risk Quantification supports the design of a cybersecurity program focused on minimizing potential financial impact, addressing the rising costs of data breaches, while also giving stakeholders a greater appreciation for protection efforts.

What is Cyber Risk?

The definition of a cyber risk is best derived from one of the most popular frameworks used for risk quantification, the Factor Analysis of Information Risk (FAIR).

The FAIR model defines a cyber risk as:

The probable frequency and probable magnitude of future loss.

According to this definition, each cybersecurity risk has three dependencies:

(Video) Introduction to Cyber Risk Quantification with Open FAIR

  • An asset of a given value
  • A threat to the integrity and safety of that asset
  • The potential impact when that threat is compromised

What is Cyber Risk Quantification? An Analysis of Financial Impact | UpGuard (1)

When these variables are incorporated into a predictory model and boundary conditions are introduced, a numerical value known as a cyber risk quantification is obtained.

What is Cyber Risk Quantification (CRQ)?

Cyber Risk Quantification (CRQ) is the process of evaluating the potential financial impact of a particular cyber threat.

Quantifying cyber risks supports intelligent decision-making, helping security professionals make informed decisions about which threats and vulnerabilities to address first.

But the CRQ process is more than just assigning each cyber risk a criticality rating. What makes this classification model unique is the consideration of financial risk.

Decision-makers and security leaders speak in a language of financial terms, not cybersecurity terminology. The CRQ risk model bridges the gap between management and security professionals, helping stakeholders appreciate the value of their security investments without requiring prolonged explanations of esoterics.

Some of the metrics that are considered when cyber risks are quantified include:

  • Operational risk
  • Risk reduction efforts
  • Risk exposure
  • Risk mitigation

The Factor Analysis of Information Risk (FAIR) Model for Cyber Risk Quantification

The Factor Analysis of Information Risk (FAIR™) is one of the leading methodologies for cyber risk management developed by the FAIR Institute - a non-profit organization committed to the reduction of operational risk.

(Video) Understanding Cyber Risk Quantification

The FAIR model quantifies cyber risk exposure as a dollar value, rather than a criticality value.

By appealing to an objective metric that resonates with all sectors of a business - dollar value at risk - the FAIR model describes cybersecurity efforts in a common language everyone can understand, helping all departments align with cybersecurity initiatives.

The FAIR model fills the gap left by existing enterprise risk management frameworks. Though most cyber risk assessments, such as those from NIST and ISO, effectively communicate the need for specific security controls, they expect organizations to complete their own financial analysis to determine the potential financial impacts of different cyberattack scenarios.

Cybersecurity frameworks help organizations assess and track the maturity of their security posture, the FAIR model extends this development by quantifying the potential impacts to suggested security controls and processes to support smarter business decisions.

To support a seamless implementation, the FAIR model has been developed to naturally integrate with existing cybersecurity frameworks such as ISO, OCTAVE, and NIST.

The FAIR model quantifies risk by considering the probable magnitude of a financial loss and the probable frequency of financial loss in a given scenario. The combination of these two factors allows each cyber risk to be assigned a unique dollar value.

To translate this data into a projection everyone can understand, a Monte Carlo simulation is used to visually represent the financial impacts of each cyber risk. This final projection is usually a curve indicating the varying probability of financial losses over a given time frame.

What is Cyber Risk Quantification? An Analysis of Financial Impact | UpGuard (2)

(Video) How Financial Risk Quantification Can Help Fed. Agencies Better Integrate Cybersecurity Risk and ERM

By attributing a dollar value to potential risk scenarios, future investments into information security technology can be easily justified to business leaders.

If a slightly more in-depth analysis of the damage potential of a cyber threat outside of financial impact is required, the DREAD framework can be implemented. There are 5 primary categories of the DREAD threat model:

  • Damage potential - What is the possible degree of damage?
  • Reproducibility - How easy is it to reproduce the intended cyberattack?
  • Exploitability - How much effort is required to launch the intended cyberattack?
  • Affected users - How many people will potentially be impacted?
  • Discoverability - How much work is required to discover the threat

The DREAD model assigns each cyber threat with a rating between 5 and 15. The criticality levels are distributed as follows:

  • Low risk - levels 5 to 7
  • Medium risk - levels 7 to 11
  • High risk - levels 12 to 15

Rather than overlaying the FAIR model with an additional threat analysis model, an even deeper degree of cyber threat insights can be instantly gathered from security ratings and vendor tiering practices.

5 Best Practices for Cyber Risk Quantification

To experience the greatest value from cyber risk quantification efforts, the following best practices should be followed:

1. Develop internal and third-party risk profiles

Create cyber risk profiles summarizing threats impacting your internal and external landscapes. The creation of vendor risk profiles is much easier if your vendors have a shared profile published.

2. Establish an objective taxonomy

To streamline internal communications regarding cyber risks, every member of an organization must align with an objective list of cybersecurity definitions within the context of cyber risk quantification.

This will elevate any confusion caused by incorrectly interchanging the same cyber terms for different events, such as referring to both malware and a ransomware gang as a cyber threat (in the context of a cyber risk quantification, only malware is a cyber threat since its potential financial impact can be quantified).

(Video) Quantifying Cyber Risk

3. Assign each asset a criticality rating

The preemptive assignment of criticality ratings for all internal and external assets will reduce the amount of data processing required in cyber risk quantification.

4. Document your efforts

Having readily accessible documents summarizing cyber risk calculations will support impromptu business decisions and the scalability of your cybersecurity programs.

5. Narrow your focus

Equally distributing remediation efforts across all cyber threats will only overwhelm the already exhausted bandwidth of security teams. Instead, narrow your focus on the cyber threats posing the highest damage potential.

The most effective risk prioritization strategy considers the broader context of each threat scenario. This is best achieved through a suite of risk analysis techniques used harmoniously such as cyber risk quantification, Vendor Tiering, and security ratings.

Cyber Risk Quantification by UpGuard

UpGuard empowers organizations to intelligently prioritize risks with the highest likelihood of facilitating data breaches. This classification process is based on an analysis of over 70 attack vectors and risk assessment data to achieve the most comprehensive contextual consideration for any given threat scenario.

To support overall protection objectives desired through the pursuit of risk quantification, UpGuard also allows businesses to project estimated security posture improvements based on the remediations of each individual security vulnerability.

Get a preliminary assessment of your organization's data breach risk, click here to request a free instant security score.

FAQs

What is cybersecurity risk quantification? ›

So, What Is Cyber Risk Quantification? Simply put, it's the process of measuring IT and cyber risk exposure in monetary terms. It helps you determine which risks to focus on first, and where to allocate your cybersecurity resources for maximum impact.

How is cybersecurity risk measured? ›

Cyber risk is calculated by considering the identified security threat, its degree of vulnerability, and the likelihood of exploitation. At a high level, this can be quantified as follows: Cyber risk = Threat x Vulnerability x Information Value.

What are the four 4 cybersecurity risk treatment mitigation methods? ›

There are four common risk mitigation strategies. These typically include avoidance, reduction, transference, and acceptance.

What is cyber risk assessment why it is important to understand? ›

A cyber security risk assessment is an important tool for any organization that relies on computer systems and networks. By identifying vulnerabilities and threats, a cyber risk assessment can help an organization take proactive steps to reduce the likelihood of a successful attack.

What are risk quantification methods? ›

Quantitative risk analysis conducts detailed sensitivity analysis and analysis of the likely effect of these scenarios on project outcomes. This involves assessing each probability and consequence and modelling project outcomes based on simulations of each risk.

What is risk quantification and analysis? ›

Risk quantification is a process of evaluating the risks that have been identified and developing the data that will be needed for making decisions as to what should be done about them [1]. PMBOK describes risk quantification as evaluating risks and risk interactions to assess the range of possible outcomes.

What are 3 ways to measure risk? ›

Some common measurements of risk include standard deviation, Sharpe ratio, beta, value at risk (VaR), conditional value at risk (CVaR), and R-squared.

What should cyber security risk analysis include? ›

A cybersecurity risk assessment evaluates the organization's vulnerabilities and threats to identify the risks it faces. It also includes recommendations for mitigating those risks. A risk estimation and evaluation are usually performed, followed by the selection of controls to treat the identified risks.

What are the three types of risk in cyber security? ›

Cybersecurity risk is typically defined by three components - threat, vulnerability, and consequence.

What are the 5 best methods used for cyber security? ›

10 steps to an effective approach to cyber security
  • Risk management regime. ...
  • Secure configuration. ...
  • Network security. ...
  • Managing user privileges. ...
  • User education and awareness. ...
  • Incident management. ...
  • Malware prevention. ...
  • Monitoring.

What are the 3 key prevention measures of cyber attacks? ›

user training education and awareness — staff should understand their role in keeping your organisation secure and report any unusual activity. security incident management — put plans in place to deal with an attack as an effective response will reduce the impact on your business.

Why do companies do cybersecurity risk assessments? ›

A cybersecurity risk assessment is used to determine the chances of an attack against a company and the potential impact a cyberattack could have on its reputation, finances, and business health. It also helps your business understand and plan to prevent attacks on your organization.

What are the two 2 types of risk management methodologies for assessing analysing and reviewing cybersecurity risks? ›

Cybersecurity risk assessments deal exclusively with digital assets and data. There are two main types of risk assessment methodologies: quantitative and qualitative.

What are the 4 parts to quantitative risk? ›

Follow these steps to perform a simple quantitative risk analysis:
  • Identify areas for uncertainty. ...
  • Assess the costs of each risk. ...
  • Determine the probability of each risk occurring. ...
  • Calculate the expected cost of each potential risk.

What are quantification techniques? ›

Quantification technique refers to any data entry or manipulation technique whose validity does not require the acceptance of a particular economic, mathematical, or statistical theory, precept, or assumption. A change in quantification technique should not change the output of the analysis in which it is employed.

What is the purpose of quantification? ›

Quantification is the act of giving a numerical value to a measurement of something, that is, to count the quanta of whatever one is measuring. Quantification produces a standardized form of measurement that allows statistical procedures and mathematical calculations.

Why is it important to quantify risks? ›

Risk quantification enables risk management professionals and cybersecurity teams to communicate risk — in monetary terms — to leadership. Using an objective method like risk quantification to convey risk also enables companies to align their cyber strategies with desired business outcomes.

What are the five 5 measures of risk? ›

The five principal risk measures include the alpha, beta, R-squared, standard deviation, and Sharpe ratio.

What are two 2 tools or methods of calculating risk? ›

Some of the techniques of quantitatively determining probability and impact of a risk include: Interviewing. Cost and time estimating. Delphi technique.

What are the two components of cybersecurity risk? ›

Cybersecurity Risk Management
  • Identifying risk – evaluating the organization's environment to identify current or potential risks that could affect business operations.
  • Assess risk – analyzing identified risks to see how likely they are to impact the organization, and what the impact could be.

What tools are used in risk analysis? ›

SWOT Analysis

This tool can be used to identify risks as well. The first step is to start with the strengths of the project. Then team members need to list out all the weaknesses and other aspects of the project that could be improved.

What are the top three data and cyber security risks? ›

Top 5 Cyber Security Risks for Businesses
  • Poor patch management. Patch management is an essential part of cyber security. ...
  • Phishing. Phishing is the most cost-effective and low-tech way to compromise sensitive data. ...
  • Weak passwords. ...
  • Ransomware. ...
  • Malware.
15 Jun 2022

What are the 3 different levels of risk? ›

1.3 Risk levels

We have decided to use three distinct levels for risk: Low, Medium, and High. Our risk level definitions are presented in table 3. The risk value for each threat is calculated as the product of consequence and likelihood values, illustrated in a two-dimensional matrix (table 4).

What are the 7 types of cyber security threats? ›

Types of cyber threats your institution should be aware of include:
  • Malware.
  • Ransomware.
  • Distributed denial of service (DDoS) attacks.
  • Spam and Phishing.
  • Corporate Account Takeover (CATO)
  • Automated Teller Machine (ATM) Cash Out.

What are 3 security measures? ›

There are three primary areas or classifications of security controls. These include management security, operational security, and physical security controls.

What are the six 6 basic network security measures? ›

Here are six essential measures needed to keep your network safe.
  • Keep Informed. ...
  • Educate Your Team. ...
  • Know Avenues of Attack and Preempt Them. ...
  • Install Antivirus and Other Security Programs. ...
  • Make Sure Your System is Physically Secure. ...
  • Test Your Security. ...
  • About the Author.

What are the 6 most common types of cyber threats? ›

Six Types of Cyber Attacks to Protect Against
  1. Malware. Malware is an umbrella term for many forms of harmful software — including ransomware and viruses — that sabotage the operation of computers. ...
  2. Phishing. ...
  3. SQL Injection Attack. ...
  4. Cross-Site Scripting (XSS) Attack. ...
  5. Denial of Service (DoS) Attack. ...
  6. Negative Commentary Attacks.

What are the 5 phases of the security life cycle? ›

Like any other IT process, security can follow a lifecycle model. The model presented here follows the basic steps of IDENTIFY – ASSESS – PROTECT – MONITOR. This lifecycle provides a good foundation for any security program.

What is the step 5 of Risk Management Framework? ›

Step 5: Monitor and Review the Risk

These professionals must make sure that they keep a close watch on all risk factors. Under a digital environment, the risk management system monitors the entire risk framework of the organization. If any factor or risk changes, it is immediately visible to everyone.

Is RMF the same as NIST? ›

The NIST Risk Management Framework (RMF) provides a comprehensive, flexible, repeatable, and measurable 7-step process that any organization can use to manage information security and privacy risk for organizations and systems and links to a suite of NIST standards and guidelines to support implementation of risk ...

What are the 5 types of cyber attacks? ›

Types of Cyber Attacks
  • Malware Attack. This is one of the most common types of cyberattacks. ...
  • Phishing Attack. Phishing attacks are one of the most prominent widespread types of cyberattacks. ...
  • Password Attack. ...
  • Man-in-the-Middle Attack. ...
  • SQL Injection Attack. ...
  • Denial-of-Service Attack. ...
  • Insider Threat. ...
  • Cryptojacking.
11 Nov 2022

What are the six measures to avoid cyber crime? ›

Protect yourself against Cybercrime with the help of Following Ways.
  • Ensure your software is up-to-date. ...
  • Don't fall for pop-ups. ...
  • Secure your internet network with a strong encryption password and a VPN. ...
  • Manage your social media settings. ...
  • Protect yourself from identity threats. ...
  • Educate your children about internet risks.

What is the most commonly used method for cyber attacks? ›

Phishing is probably the most common form of cyber-attack, largely because it is easy to carry out, and surprisingly effective.

How often should you do a cyber risk assessment? ›

Cybersecurity threats constantly evolve as hackers find new ways to infiltrate companies' IT networks. Cybersecurity experts recommend that businesses carry out at least one cybersecurity risk assessment yearly as part of their overall cybersecurity plan.

What is quantitative risk assessment in cyber security? ›

A quantitative cybersecurity risk assessment is a systematic process of evaluating risks arising from threats. There are many frameworks and methodologies for conducting such a risk assessment. Today, many in the industry, including Fractional CISO, use the NIST CSF framework for evaluating an organization.

How is the risk quantification formula calculated? ›

The risk(R) is calculated by multiplying probability(P) with the impact(I) or severity. Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix.

What are the 3 steps of security risk assessment? ›

3 Steps to Perform a Data Security Risk Assessment Successfully
  • Identify what the risks are to your critical systems and sensitive data.
  • Identify and organize your data by the weight of the risk associated with it.
  • Take action to mitigate the risks.

Why is it important to quantify risk? ›

Risk quantification enables risk management professionals and cybersecurity teams to communicate risk — in monetary terms — to leadership. Using an objective method like risk quantification to convey risk also enables companies to align their cyber strategies with desired business outcomes.

How do you quantify risks based on impact and probability? ›

Assess the probability of each risk occurring, and assign it a rating. For example, you could use a scale of 1 to 10. Assign a score of 1 when a risk is extremely unlikely to occur, and use a score of 10 when the risk is extremely likely to occur. Estimate the impact on the project if the risk occurs.

What are the 5 levels of risk? ›

Most companies use the following five categories to determine the likelihood of a risk event:
  • 1: Highly Likely. Risks in the highly likely category are almost certain to occur. ...
  • 2: Likely. A likely risk has a 61-90 percent chance of occurring. ...
  • 3: Possible. ...
  • 4: Unlikely. ...
  • 5: Highly Unlikely.
18 Mar 2021

What are the 4 principles of risk assessment? ›

These principles are:
  • avoid risk wherever possible;
  • carry out risk assessment to evaluate risks that cannot be avoided;
  • take action to reduce risks to ALARP (as low as reasonably practicable) levels;
  • reduce risks at source wherever possible.

What are the 4 components of risk assessment? ›

The risk assessment process consists of four parts: hazard identification, hazard characterization, exposure assessment, and risk characterization. Hazard identification aims to determine the qualitative nature of the adverse effects by a contaminant (genotoxicity, carcinogenicity, neurotoxicity etc.).

What are the 4 P's in security? ›

In general, Information Security professionals suggest that protecting sensitive data requires a combination of people, processes, polices, and technologies.

What are the 4 main categories of risk? ›

The main four types of risk are:
  • strategic risk - eg a competitor coming on to the market.
  • compliance and regulatory risk - eg introduction of new rules or legislation.
  • financial risk - eg interest rate rise on your business loan or a non-paying customer.
  • operational risk - eg the breakdown or theft of key equipment.

Videos

1. SoK: Quantifying Cyber Risk
(IEEE Symposium on Security and Privacy)
2. Cyber Risk Quantification
(MetricStream)
3. Cyber Risk Quantification (CRQ) FAQs
(Protiviti)
4. Live Webinar: Align Security with Financial Impact and Risk through Cyber Risk Quantification
(CXO Insight ME)
5. Cyber Risk Quantification: Core Metrics for Success
(MetricStream)
6. Cyber Risk Quantification Masterclass - Part 5 The right approach to Cyber Risk Quantification
(BitSight)
Top Articles
Latest Posts
Article information

Author: Terrell Hackett

Last Updated: 12/11/2022

Views: 5941

Rating: 4.1 / 5 (72 voted)

Reviews: 95% of readers found this page helpful

Author information

Name: Terrell Hackett

Birthday: 1992-03-17

Address: Suite 453 459 Gibson Squares, East Adriane, AK 71925-5692

Phone: +21811810803470

Job: Chief Representative

Hobby: Board games, Rock climbing, Ghost hunting, Origami, Kabaddi, Mushroom hunting, Gaming

Introduction: My name is Terrell Hackett, I am a gleaming, brainy, courageous, helpful, healthy, cooperative, graceful person who loves writing and wants to share my knowledge and understanding with you.