Risk management is the practice of proactively evaluating where your organization is vulnerable to threats, then assessing and mitigating those threats.
Risk management incorporates various policies and processes that identify, assess and control a wide variety of potential risks to an organization, including financial uncertainty, legal liabilities, strategic management errors, accidents, natural disasters and cyberattacks. Ultimately, risk management lets organizations shift from a wait-and-see approach to one that’s proactive and preventative.
With the proliferation of sophisticated and stealthy malware, as well as a dearth of stringent and financially punitive compliance regulations such as the General Data Protection Regulation (GDPR), risk management tools and strategies have become a top priority for enterprises. Not surprisingly, organizations are increasingly devising comprehensive risk management plans that show their processes for identifying and controlling threats around the entirety of their digital assets, which include classified, proprietary or otherwise sensitive corporate data, intellectual property and personally identifiable customer information.
The following article examines different types of risk, why understanding your business risk is important, and the various risk response and overall risk reduction techniques.
What Is Risk Management: Contents
Why is it important to understand your business risk?
Understanding your business risk is critical for enterprises because it allows you to have visibility into, and thus more control over, the numerous factors and variables that can potentially result in severe, costly and long-term damage. Understanding specific risk factors not only allows a business to identify potential threats, losses and disruptions ahead of time, it can also help them respond to threats appropriately and allocate correct resources and infrastructure to minimize or prevent severe losses.
What are the different types of risk?
There are numerous types of business risk that enterprises face, but some of the most common include operational, financial, compliance, reputational, strategic and security risks.
What is the total cost of risk (TCoR)?
Total cost of risk is a quantifiable, controllable number representing the sum of all aspects of an organization's operations that relate to managing risk and incurring losses. This equation includes, among other things, factors such as insurance premiums, deductibles, uninsured losses and related loss adjustment expenses, regulatory fines, internal and external risk-control costs, administrative costs and taxes and fees. A significant part of understanding risk is the ability to calculate the TCoR to your organization.
What are the causes of security risk?
Security risks can be sourced to people, such as disgruntled, careless or uninformed employees or third-party providers. Risk can also be attributed to faulty or vulnerable devices and applications, such as mobile devices that have the potential to expose company data to unauthorized users, unpatched or significantly outdated equipment and systems, as well as vulnerable public cloud applications or inadequate security policies.
How does a breach affect risk?
Breaches have severe and often long-term consequences — including increasing kinds of risk — for affected organizations.
A breach or successful cyberattack will almost certainly increase an organization’s financial exposure. Some of the most obvious costs associated with a data breach include financial compensation to victims or replacing money stolen due to the breach. In addition, breached organizations will also have to pay stiff compliance fines from government and regulatory agencies — under GDPR, for example, penalties can reach a maximum of €20 million ($22 million) or 4% of global annual turnover, whichever is greater. What’s more, organizations suffering a breach will inevitably face plummeting share value, while also being forced to pay increased insurance premiums to protect themselves in the event of a breach ever occurring again.
And on top of numerous immediate costs, breaches also have long-term consequences for organizations. Following a breach, the affected company also has to deal with longer-term reputational damage that includes declining consumer confidence, customer attrition and loss of market share to competitors. Also, because data breach victims are susceptible to identity theft if their personal or financial information was compromised, the breached organization could likely face lawsuits and settlements for months or years to come.
What are the steps to undertake risk management?
Risk management typically consists of three steps: risk assessment, risk analysis and risk mitigation.
How do you mitigate security risk?
One of the critical steps in mitigating security risk is the ability to identify vulnerabilities and detect breaches that leave you susceptible to attack. Regular cyberthreat assessments can lead to early risk detection and mitigation by exposing application vulnerabilities, detecting malware and botnets, and identifying outdated or at-risk devices. In addition, assessments can help you analyze user productivity and determine which apps are being run on the system, while also offering insight into network utilization and performance, including bandwidth usage, to identify suspicious spikes in traffic before harmful disruptions can occur.
How can automation help reduce risk?
One way that enterprises can comprehensively address risk is via automation, which can apply more power and structure to threat detection and incident resolution. Critical systems such as IT operations, threat and vulnerability management, configuration, compliance auditing and identity governance systems can all be automated as part of the company’s risk management process. Operations and security incidents that occur within these systems can be mapped to IT-risk repositories, allowing incident response teams to assess the level of risk they pose to the organization.
Details about a newly registered vulnerability, for example, can be automatically downloaded into the risk-management solution, which can then trigger an incident investigation and classify the level of the incident’s risk and severity based on a predetermined set of criteria. After the solution classifies the threat, the automated system can trigger the necessary action plan. And if the vulnerability becomes a threat, the solution can also trigger the risk assessment process and use the threat’s CVE number to launch proactive patch management.
How do different verticals approach risk?
With different sets of customers, compliance regulations, objectives and assets, industries such as healthcare, financial services and government all take a very different approach to risk avoidance, mitigation plans and related investment decisions. For example:
What is the risk management framework (RMF?)
One of the ways government agencies can create consistent, repeatable and reliable standards for IT infrastructure and security is through the risk management framework (RMF), a set of guidelines that mandate how U.S. government IT systems should be built, monitored and secured.
Designed to identify risks that could harm operations, these risk management standards includes guidelines from the U.S. Department of Defense, the National Institute of Standards and Technology, and others.
Risk management is essential for protecting assets
With everything from increasingly stringent compliance regulations to prolific and destructive cybersecurity threats, it’s well-established that enterprises continue to face mounting risk to their data, their assets and their reputation. Consequently, effective risk management is now an essential component of enterprise operations.
For organizations, the benefits of implementing a comprehensive risk management program are extensive, giving security leaders, administrators and policy makers the ability to:
A comprehensive risk management plan helps security leaders and professionals fulfill all of these commitments. From both a security and operational standpoint, it enables CIOs, security analysts and administrators to make and maintain continuous improvements to the business — all of which can help reduce and manage costly security and compliance risk that threatens to harm the organization, and ultimately, the bottom line.
Check out these resources on risk management: