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Risk Assessments: A Step-By-Step Guide

Performing risk assessments is a key part of any organization’s information security management program. Everyone knows that there’s some level of risk involved when it comes to a company’s critical data, assets, and facilities, but how do you quantify and prepare for this risk? The purpose of a risk assessment is to determine what security risks are posed to your company’s critical assets and to know how much funding and effort should be used in the protection of them.


Here are the steps involved in performing a risk assessment and how to understand the data obtained from it:


1. Identify and Scope Assets


The first logical step when performing a risk assessment is to identify the assets to be evaluated and to determine the scope of the assessment. Do you want to perform an assessment on every single asset in the company, including your buildings, employees, electronic data, trade secrets, vehicles, office equipment, and so on?

To avoid getting overwhelmed, it’s usually best to limit your scope to one type of asset and then conduct assessments on other types as time and resources allow. Let’s assume that you want to assess only the electronic data stored on your information systems. Of course, the data is the primary asset, but what other assets are responsible for handling and securing the data? These are things like servers, desktop PCs, firewalls, mobile devices, etc. You must include these secondary assets in the assessment, because a risk posed to these devices is also a risk that’s posed to your data.


2. Determine the Value of the Assets


After identifying and scoping the assets to be assessed, you must next determine their value. This is often difficult to do because “value” includes more factors than what you paid for the physical item. Let’s continue using the example of confidential electronic data. There are many questions to ask when determining its value. If you lost all your company’s data tomorrow, how much time and money would it cost to create it all from scratch again? How much would a competitor pay to obtain it? What revenue would be lost as a result of the data being compromised? Would there be financial penalties to pay? All of these questions can give you a general estimate of how much your company’s data is worth.

In addition to using numbers and evidence to determine an asset’s value (called a quantitative risk assessment), you should also consider intangible factors (called a qualitative risk assessment). How would losing your data impact day-to-day operations? Could your employees even work? How would it affect your company’s reputation? How far would it set you back in terms of productivity? These subjective questions should be considered along with the numbers and estimates from the quantitative portion of the assessment.


3. Determine the Likelihood and Impact of Various Loss Scenarios on a Per-Year Basis


The next step in the risk assessment process is to identify various situations where your asset could be adversely affected, how likely those situations are to happen, and the impact of those cases if they happened, all on a per-year basis.

Let’s imagine that you have a warehouse containing your inventory and equipment, and that warehouse is worth $20 million based on your estimates. If you live in a dry area that is prone to fires, you should consider the likelihood of your facility being damaged or destroyed in a fire. From the data you’ve researched in your area, you make an informed estimate that your building could be affected by a fire once every ten years. You further estimate that, in the event of a fire, half of your warehouse would be lost before the fire could be contained. This results in an estimated loss of $10 million every ten years, or in annual terms, $1 million every year.

This concept translates to every type of asset. If you’re evaluating electronic data, identify various loss scenarios such as an attacker compromising your network and destroying 25% of your data, or a system crash losing the past two weeks of sales records, or server equipment failure preventing you from generating new data for five days.

Determine how likely each scenario would be on a per-year basis (called the Annual Rate of Occurrence, where 1 equals once per year, 0.5 equals once every two years, etc.), calculate the dollar-amount loss of each instance (called the Single Loss Expectancy), and multiply the likelihood by the cost to get the Annualized Loss Expectancy, which is the amount that you can spend per year on protecting against this situation.


4. Weigh Cost of Prevention Against Value of Asset


You’ve now determined how much your asset is worth and how much it costs to protect it. This step is simple: If it costs more to protect the asset than it’s worth, it doesn’t make sense to use that control or prevention method. To continue with the warehouse example, there are several ways to mitigate or transfer the risk of losing your asset: You could install fire suppression systems, use fire-resistant building materials, or purchase insurance to recover the cost of the damage. You now know that it doesn’t make financial sense to spend more than $1 million per year on reducing the risk of fire to your warehouse, because any higher than that, and you’d be spending more protecting the asset than it is worth.

5. Implement and Monitor Security Controls; Re-evaluate Risk


After identifying a cost-effective solution for reducing risk, it’s time to implement and monitor it to ensure that it’s performing according to your expectations. Has your new email filter reduced the amount of dangerous emails you get? Has your new data backup system allowed you to experience an outage without losing data? Implementing security controls is not a set-and-forget process; it requires ongoing monitoring to ensure optimal performance.


It’s also important to realize that the amount of risk that your assets face is constantly changing. New types of threats emerge every day, so it’s important to conduct a fresh review periodically to ensure that you are correctly managing your company’s risk. Doing so will allow you to stay on top of the security needs for your business while correctly handling the risks posed to your assets.

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