Risk
11/19/2013
09:06 AM
Dave Kearns
Dave Kearns
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Understanding IT Risk Management In 4 Steps X 3

A risk management matrix combines the probability of harm and the severity of harm. In IT terms that means authentication, context, and process.

If you had to protect a million dollars in gold, would you spend $3 million to do it? In certain circumstances, you might.

If you wanted to steal a million dollars in gold, would you spend $3 million to do it? Many would answer, "of course not."

But, again, in certain circumstances they would be wrong. I’ll explain in a moment, but first some background. What I’m talking about is a discipline called IT risk management. Risk management began in the financial markets where the risk was about stocks and securities. By extension, it was applied to an organization’s digital resources. That aspect falls under the purview of the Chief Information Security Officer (CISO) for your enterprise.

What’s that you say? You don’t have a CISO? Yes you do. Like all CxO titles, the position exists even without the title. Someone is, as part of whatever position they do hold, in charge of information security. So, therefore, they’re in charge of risk management.

The concept of risk management isn’t that difficult to grasp. It involves something called a "risk matrix," which is used to produce a number called a "risk metric," which, in turn, is used to choose a course of action. The risk metric is defined as the combination of the probability of occurrence of harm and the severity of that harm. Frequently the severity is monetized as the value either of the resource or the cost of mitigating the harm to the resource.

Let me give you an example. In my writings on authentication and authorization I’ve strongly advocated a method called Risk-Based Access Control (Risk-BAC). When properly implemented, the authentication system will construct a "risk matrix" based on the context of the authorization ceremony. That is, knowing who is logging in, what method they are using, where they’re located, which platform they are using, what the time is, etc. can all be distilled into an authorization risk metric. We then take into account the "what" -- what resource the person is attempting to use and calculate a value.

Based on a locally controlled formula combining the risk metric with the attribute value yields a calculated figure, which the authorization engine can use to determine one of four states:

State 1: The authentication is valid, the connection is safe, the access is allowed.
State 2: The authentication is questionable, further authentication factors should be asked for.
State 3: The authentication is valid, the connection is questionable, the authorization level should be reduced.
State 4: The authentication is questionable, the connection is questionable, the access is denied.

The risk management process can be distilled to four steps:

Step 1: Identify the context.
Step 2: Gather the data.
Step 3: Assess the risk.
Step 4: Treat the risk, 

Now let’s look in particular at the last step: Treat the risk. Again there are four possibilities:

Risk avoidance:  Remove the risk from the resource.
Risk reduction: Lessen the impact of the risk
Risk retention:  Be aware of the risk and compensate for it.
Risk transfer: Let someone else foot the bill (e.g., insurance)

Going back to the million dollar resource we wish to protect, the fallacy here is to treat the value of the resource ($1 million) as the sole factor making up the severity of the harm. A bank, for example, touting the benefits of its strong room would lose far more than $1 million if the gold was stolen. The harm to their reputation could be valued in the billions. So spending $3 million to protect the gold is not really farfetched. Likewise, the thief might value the theft at far more than the gold’s value because it would enhance his reputation as a thief, so spending $3 million might be (for him) a good investment.

Consider all aspects of the risk when calculating a risk metric. As James Lam, former chief risk officer of GE Capital, once said: "Over the longer term, the only alternative to risk management is crisis management, and crisis management is much more embarrassing, expensive and time consuming."

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Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Strategist
11/19/2013 | 9:23:13 AM
Theory V. Practice of IT Risk Management
This a very succint definition of risk management for an IT audience along with --what seems to be -- a simple strategy for getting started. But, realistically, can risk management really be that easy to implement? What are the biggest gotchas? What is the low-hanging fruit that put organizations on the path to success? Let's talk about the issues people are facing in the real world. 
J_Brandt
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J_Brandt,
User Rank: Apprentice
11/19/2013 | 12:07:15 PM
Talk with Management
A good, simple article to use with management to jump start the conversation on risk management.
J_Brandt
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J_Brandt,
User Rank: Apprentice
11/19/2013 | 12:09:29 PM
Re: Theory V. Practice of IT Risk Management
It is never that easy.  If for no other reason, because it involves lawyers.
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Strategist
11/19/2013 | 12:26:01 PM
Re: Talk with Management
J_Brant. I'm very interested in hearing your strategy for talking to management about Risk Management. How would  you jumpstart the conversation (What your elevator pitch?)  and who within our organizatin would you enlist to help make the case? 
Susan Fogarty
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Susan Fogarty,
User Rank: Apprentice
11/19/2013 | 2:22:42 PM
Calculating the cost of risk
It's easier to understand risk when you're talking in terms of a bank that has a certain amount of money it needs to insure. Even intellectual property can be quantified in most cases with a monetary value. But how do businesses quantify softer potential losses, like downtime and lost opportunity?
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Strategist
11/20/2013 | 9:11:23 AM
Re: Calculating the cost of risk
Downtime losses , seem to me, would be relatively easy to calculate in dollars and cents by estimating  the revenues that a company would be earned during a similar period of time. Or in an organization like a hospital, the number of patients whose care was disrupted and whatever additional costs were incurred to keep their conditions stable and improving. 

Loss of opportunity is a lot more difficult to put a hard number on. I'm open to suggestions! 
dak3
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dak3,
User Rank: Apprentice
11/21/2013 | 12:53:16 PM
Re: Calculating the cost of risk
The hardest part to quantify is loss of reputation which leads to loss of both current and future clients and - in extreme cases - to loss of the enterprise (e.g., Diginotar).

 

It's not a simple calculation by any means.
Susan Fogarty
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Susan Fogarty,
User Rank: Apprentice
11/21/2013 | 5:14:17 PM
Re: Calculating the cost of risk
dak3, that's an excellent point. any publicized breach in security can cost a company immeasurable loss in terms of customer trust and loyalty.
J_Brandt
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J_Brandt,
User Rank: Apprentice
11/24/2013 | 4:41:14 PM
Re: Talk with Management
It's less an elevator speech, and more a requested meeting.  As head of IT you need to understand where the concerns of risk management are.  Risk Management needs to understand the potential issues that go along with any new tech deployment.  It's a mutual need and education relationship.
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Strategist
11/25/2013 | 10:19:58 AM
Re: Talk with Management
That makes a lot of sense, J_Brandt. And your point about how important it is for IT to set the stage in a face to face meeting with management is well taken. Dave's matrix lays out the foundation for that talk and puts the substance of the discussion in the context of an organization's critical issues and needs. 
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