The Business Case for Risk Quantification

The threat of cybersecurity attacks continues to be top of mind for boards and senior executives everywhere. According to the 10th Allianz Risk Barometer 2021 annual report, business interruption and cyber incidents, along with pandemic outbreaks, were the top three global business risks for 2021. This should come as no surprise. With technology increasingly being used to drive value, the trifecta of digital engagement, cloud migration, and remote work has elevated cyber risk from a technology concern to an organization-wide obstacle. 

As companies strategically invest in technology to drive growth and improve efficiency, they face an expanding number of risks. Enhanced data privacy requirements, ballooning risk registers, and the increasing size and frequency of cyberattacks means companies must commensurately spend on cybersecurity to protect their expected return on technology investment. 

With a myriad of risks and limited security budgets, how do you decide which projects to prioritize? Risk quantification helps you assess the value of cybersecurity projects using a commonly understood framework that ascribes a financial value to each prioritized decision based on statistical modeling of risk and expected loss. 

Risk Quantification Defined

For many years projects have been prioritized based on qualitative assessments of likelihood and numerically weighted scales, whereas risk quantification supports more rigorous decision-making by quantifying the potential financial loss to your business due to a risk scenario. 

Risk quantification is a tactical tool used to help understand and evaluate key risk scenarios in order to make more informed decisions and determine the financial impact on your organization. The objective of quantification is to prioritize the risks by the magnitude of potential loss so you can allocate your cybersecurity budget towards the investment and mitigation strategies with the best return on investment.

What is Risk Quantification?

Risk quantification adds a layer of clarity to risk decision-making. Risk quantification starts with the evaluation of your organization’s cybersecurity risk landscape. As risks are identified, they are annotated with a potential loss amount and frequency which feeds a statistical model that considers the probability of likelihood and the financial impact, estimating the potential financial loss. 

When assessing cybersecurity projects, risk quantification supports the use of loss avoidance as a proxy for return on investment. Investments in tighter controls, assessment practices, and risk management tools are ranked by potential exposure. When comparing two $1mm projects, the one that mitigates $10mm of potential exposure will be ranked higher than the one that mitigates $7mm of potential exposure.  

This quantitative analysis is already being done in some organizations. Currently, the FAIR Institute’s Factor Analysis of Information Risk or FAIR open-source model is the leader in the space. The FAIR model is increasingly being integrated into established enterprise risk management and cybersecurity frameworks such as NIST, COSO, and HITRUST.

The Future of Risk Quantification

Risk quantification is not new, but it is growing in popularity. Widespread adoption is limited by the subjective nature of the model parameters, which can lead to a debate on the reliability of the numbers. As industry data becomes more readily available and companies have historical numbers to reference, risk quantification techniques are expected to be more widely used. 

Risk quantification works within the existing framework for business decision-making. It provides a unifying language and common financial measurement that can easily be digested by boards, business units, and GRC professionals. Quantifying the value of a cybersecurity program allows for a more nuanced approach to managing risk. If a $1MM investment can mitigate $10MM of risk, it opens capacity for additional risk-taking, provided it’s within the company’s risk appetite and tolerance.

As an important tool for strategic planning, risk quantification is being increasingly adopted by information security and risk management professionals. According to Gartner:

By 2023, 30% of a CISO’s effectiveness will be directly measured on the ability to create value for the business.  

Risk quantification empowers CISOs and CROs to be more strategic in their risk decision-making by integrating the financial impact of risk management, mitigation, and control and allowing you to make a strong business case when you present to the board.

Risk quantification, however, is not a one-size-fits-all approach. It should be employed as a tactical tool to quantify the most significant risks so companies can optimize their security investment to realize the full financial and strategic benefits of any digital transformation program. 

How LogicGate Can Help

Risk quantification is an important tool that should be leveraged judiciously so as not to overwhelm your program. When used strategically to allocate investment, it can bring clarity and assurance to your decision making. 

Find out how LogicGate's Risk Cloud Quantify® can help your company build a competitive advantage and transform your risk data into a risk strategy that everyone can understand.