The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Simply put, risk management is a two-step process - determining what risks exist in an investment and then handling those risks in a way best-suited to your investment objectives. Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices. Performing a risk analysis, either at the logical or physical level in and around the information technology (IT) enterprise, is a complex and often confusing endeavor. The importance of the quantitative portion of the risk assessment is in knowing that the potential for loss is US $100,000 versus US $1 million.
Reporting is an area that separates these products in their approach to providing a customized method for presenting a risk profile.
THE ROBERTS COMPANY, LLC introduces a computerized approach to interrogate business transactions and identify data patterns associated with fraud situations, external and internal audits, litigation cases and regularity compliance requirements. Programmers understand the concept of garbage in, garbage out (GIGO) and this universal truth applies to risk management equally, if not more. The concept is based on the precept that no asset faces 100 percent risk, 100 percent of the time. Adding the quantitative component to a qualitative risk assessment ensures that the safeguards deployed are commensurate with the value of assets or processes at risk. In some cases, there are more than 500 individual questions that must be answered to produce a risk profile. When evaluating these types of products it is best to consider how the data are presented once the analysis has been completed. However, one must remember that these products have their limitations and cannot replace sound risk management judgment or experience. For example, the recession that began in 2008 was largely caused by the loose credit risk management of financial firms.
There is an art (and science) to performing risk assessments, which may explain why so few organizations conduct them well, or at all. This article looks at these tools, creates a framework of understanding and provides insight into the world of automated risk analysis.
The more sophisticated products also allow one to import or link to data from penetration tests, intelligence reports or other risk-gathering formats. One must be careful to recognize that not all of these will provide sufficient information to make an informed decision on selecting an appropriate risk mitigation strategy. Questionnaires also can be allocated across numerous external locations with the results rolled into a composite risk profile. Disaster recovery risk assessment and business impact analysis (BIA) are crucial steps in the development of a disaster recovery plan.
Adapted with permission from the BCM Lifecycle developed by the Business Continuity Institute.
Following the BIA and risk assessment, the next steps are to define, build and test detailed disaster recovery plans that can be invoked in case disaster actually strikes the organisation’s critical IT assets. Detailed response planning and the other key parts of disaster recovery planning, such as plan maintenance, are, however, outside the scope of this article so let us get back to looking at disaster recovery risk assessment and business impact assessment in detail. Working with IT managers and members of your building facilities staff as well as risk management staff if you have them, you can identify the events that could potentially impact data centre operations. Supply chain disruptions present a key risk, said Susan Young, MBCI, a risk management professional with a London-based insurance company.


Water damage is a key risk to organisations in the UK, and sometimes the source can be so obvious it gets overlooked, said 2C’s Barnes. A BIA attempts to relate specific risks to their potential impact on things such as business operations, financial performance, reputation, employees and supply chains. BIA outputs should present a clear picture of the actual impacts on the business, both in terms of potential problems and probable costs. 2C Consulting’s Barnes said a key aim of the BIA should be to define the maximum period of time the business can survive without IT. This chapter contains a number of techniques used to support migration planning in Phases E and F.
The technique of creating an Implementation Factor Assessment and Deduction matrix can be used to document factors impacting the architecture Implementation and Migration Plan. The technique of creating a Consolidated Gaps, Solutions, and Dependencies matrix allows the architect to group the gaps identified in the domain architecture gap analysis results and assess potential solutions and dependencies to one or more gaps.
The technique of creating an Architecture Definition Increments table allows the architect to plan a series of Transition Architectures outlining the status of the enterprise architecture at specified times.
The technique of creating the Transition Architecture State Evolution table allows the architect to show the proposed state of the architectures at various levels using the Technical Reference Model (TRM).
A technique to assess business value is to draw up a matrix based on a value index dimension and a risk index dimension.
The results of a risk assessment will never exceed the quality of the data used as input to the process.
The risk assessment tools market is relatively small and is comprised of approximately a dozen companies, of which seven (see table 1) appear to garner the majority of the market share. Although most of these products are quite difficult to use without two to three days of training from the vendor or distributor, they can offer a substantial savings in time and resources when performing an enterprise-level risk analysis.
Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance. More complex enterprises or those with limited budgets require a more advanced form of risk analysis.
This is a boutique industry where the companies generally are headed by an acknowledged expert in the field of risk management and have been in business for 10 years or more. The total number of risk assessment tools in active use today is less than 12,000 worldwide.
Risk analysis tools need to be able to measure the potential for loss that a threat could have on an organization. And one also must understand that the end product of the risk analysis will be commensurate with the quality of the input and accuracy of the answers to the questionnaires.
To find this information, an advanced risk analysis technique, known as a quantitative approach, is used to provide statistical insight to risk prediction and impact.
Not all of the products noted provide ROI modules as this is a relatively recent development in the science of risk management. However, calculating risk is no different from programming an application to perform a prescribed function. Also, using incorrect threat and vulnerability assumptions to determine one's risk profile and posture can be costly in terms of money and lives. But, before we look at them in detail, we need to locate disaster recovery risk assessment and business impact assessment in the overall planning process. The speed at which IT assets can be returned to normal or near-normal performance will impact how quickly the organisation can return to business as usual or an acceptable interim state of operations.


The results of the BIA should help determine which areas require which levels of protection, the amount to which the business can tolerate disruptions and the minimum IT service levels needed by the business. To understand how a risk assessment tool can assist in the process of identifying and quantifying risk, it is important to first understand what a risk analysis is.
The next major function of these products is to perform calculations to determine risk probability and ultimately rank risks by their level of importance. Organizations with a serious commitment to an infosec program should have one of these products incorporated within their risk management methodology to facilitate a uniform approach to identifying, reducing and managing risk. Arriving at an accurate risk profile is equally difficult, but needed to identify one's risk and subsequently manage or mitigate the threats and vulnerabilities that create the risk. The ability for a risk assessment tool to calculate loss estimates, such as ALE, and financial metrics, such as cost of risk mitigation and ROI, is an indication of its comprehensiveness. The 2003 worldwide revenue for risk management software tools that specifically address the IT community is projected at US $35 million. It is best to evaluate which product most closely aligns to each organization's risk management philosophy. Qualitatively and quantitatively, all the necessary data are available to produce a credible risk assessment statement. The BIA identifies the most important business functions and the IT systems and assets that support them.
The final column lists the product of likelihood x impact, and this becomes your risk factor. For example, in the Lloyd's insurance market in London, all businesses depend on a firm called Xchanging to provide premiums and claims processing. Each product adheres to one or more of the industry accepted risk standards, BS7799, ISO, DOD, HIPAA, etc., for identifying risks and suggesting safeguards.
In fact, many of these products sell versions or templates to address specific risk areas, such as HIPAA, the Gramm-Leach-Bliley Act, etc.
Next, the risk assessment examines the internal and external threats and vulnerabilities that could negatively impact IT assets.
Those events with the highest risk factor are the ones your disaster recovery plan should primarily aim to address. The risk index should include criteria such as size and complexity, technology, organizational capacity, and impact of a failure.
Additionally, many of these products have been written by software programmers, as opposed to risk experts, and their quality of recommendations in safeguards, threats and vulnerabilities sometimes reflects a sophomoric approach to sophisticated risk management. Inadequate risk management can result in severe consequences for companies as well as individuals.
It occurs when an investor buys low-risk government bonds over more risky corporate debt, when a fund manager hedges their currency exposure with currency derivatives and when a bank performs a credit check on an individual before issuing them a personal line of credit.
However, the process of identifying, quantifying and associating risk to assets falls just short of rocket science for most people.
There are, however, software products that provide a methodology and structure to the entire risk analysis process.
There are, of course, varying degrees of risk analysis, with each providing differing views of an organization's risk posture.



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