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This chapter is from the book

Information Security Risk

Three factors influence information security decision making and policy development:

  • Guiding principles
  • Regulatory requirements
  • Risks related to achieving their business objectives.

Risk is the potential of an undesirable or unfavorable outcome resulting from a given action, activity, and/or inaction. The motivation for “taking a risk” is a favorable outcome. “Managing risk” implies that other actions are being taken to either mitigate the impact of the undesirable or unfavorable outcome and/or enhance the likelihood of a positive outcome.

For example, a venture capitalist (VC) decides to invest a million dollars in a startup company. The risk (undesirable outcome) in this case is that the company will fail and the VC will lose part or all of her investment. The motivation for taking this risk is that the company becomes wildly successful and the initial backers make a great deal of money. To influence the outcome, the VC may require a seat on the Board of Directors, demand frequent financial reports, and mentor the leadership team. Doing these things, however, does not guarantee success. Risk tolerance is how much of the undesirable outcome the risk taker is willing to accept in exchange for the potential benefit—in this case, how much money the VC is willing to lose. Certainly, if the VC believed that the company was destined for failure, the investment would not be made. Conversely, if the VC determined that the likelihood of a three-million-dollar return on investment was high, she may be willing to accept the tradeoff of a potential $200,000 loss.

Is Risk Bad?

Inherently, risk is neither good nor bad. All human activity carries some risk, although the amount varies greatly. Consider this: Every time you get in a car you are risking injury or even death. You manage the risk by keeping your car in good working order, wearing a seat beat, obeying the rules of the road, not texting, not being impaired, and paying attention. Your risk tolerance is that the reward for reaching your destination outweighs the potential harm.

Risk taking can be beneficial and is often necessary for advancement. For example, entrepreneurial risk taking can pay off in innovation and progress. Ceasing to take risks would quickly wipe out experimentation, innovation, challenge, excitement, and motivation. Risk taking can, however, be detrimental when ill considered or motivated by ignorance, ideology, dysfunction, greed, or revenge. The key is to balance risk against rewards by making informed decisions and then managing the risk commensurate with organizational objectives. The process of managing risk requires organizations to assign risk-management responsibilities, establish the organizational risk appetite and tolerance, adopt a standard methodology for assessing risk, respond to risk levels, and monitor risk on an ongoing basis.

Risk Appetite and Tolerance

Risk appetite is a strategic construct and broadly defined as the amount of risk an entity is willing to accept in pursuit of its mission. Risk tolerance is tactical and specific to the target being evaluated. Risk tolerance levels can be qualitative (for example, low, elevated, severe) or quantitative (for example, dollar loss, number of customers impacted, hours of downtime). It is the responsibility of the Board of Directors and executive management to establish risk tolerance criteria, set standards for acceptable levels of risk, and disseminate this information to decision makers throughout the organization.

What Is a Risk Assessment?

An objective of a risk assessment is to evaluate what could go wrong, the likelihood of such an event occurring, and the harm if it did. In information security, this objective is generally expressed as the process of (a) identifying the inherent risk based on relevant threats, threat sources, and related vulnerabilities; (b) determining the impact if the threat source was successful; and (c) calculating the likelihood of occurrence, taking into consideration the control environment in order to determine residual risk.

  • Inherent risk is the level of risk before security measures are applied.
  • A threat is a natural, environmental, or human event or situation that has the potential for causing undesirable consequences or impact. Information security focuses on the threats to confidentiality (unauthorized use or disclosure), integrity (unauthorized or accidental modification), and availability (damage or destruction).
  • A threat source is either (1) intent and method targeted at the intentional exploitation of a vulnerability, such as criminal groups, terrorists, bot-net operators, and disgruntled employees, or (2) a situation and method that may accidentally trigger a vulnerability such as an undocumented process, severe storm, and accidental or unintentional behavior.
  • A vulnerability is a weakness that could be exploited by a threat source. Vulnerabilities can be physical (for example, unlocked door, insufficient fire suppression), natural (for example, facility located in a flood zone or in a hurricane belt), technical (for example, misconfigured systems, poorly written code), or human (for example, untrained or distracted employee).
  • Impact is the magnitude of harm.
  • The likelihood of occurrence is a weighted factor or probability that a given threat is capable of exploiting a given vulnerability (or set of vulnerabilities).
  • A control is a security measure designed to prevent, deter, detect, or respond to a threat source.
  • Residual risk is the level of risk after security measures are applied. In its most simple form, residual risk can be defined as the likelihood of occurrence after controls are applied, multiplied by the expected loss. Residual risk is a reflection of the actual state. As such, the risk level can run the gamut from severe to nonexistent.

Let’s consider the threat of obtaining unauthorized access to protected customer data. A threat source could be a cybercriminal. The vulnerability is that the information system that stores the data is Internet facing. We can safely assume that if no security measures were in place, the criminal would have unfettered access to the data (inherent risk). The resulting harm (impact) would be reputational damage, cost of responding to the breach, potential lost future revenue, and perhaps regulatory penalties. The security measures in place include data access controls, data encryption, ingress and egress filtering, an intrusion detection system, real-time activity monitoring, and log review. The residual risk calculation is based on the likelihood that the criminal (threat source) would be able to successfully penetrate the security measures, and if so what the resulting harm would be. In this example, because the stolen or accessed data are encrypted, one could assume that the residual risk would be low (unless, of course, they were also able to access the decryption key). However, depending on the type of business, there still might be an elevated reputation risk associated with a breach.

Risk Assessment Methodologies

Components of a risk assessment methodology include a defined process, a risk model, an assessment approach, and standardized analysis. The benefit of consistently applying a risk assessment methodology is comparable and repeatable results. The three most well-known information security risk assessment methodologies are OCTAVE (Operationally Critical Threat, Asset, and Vulnerability Evaluation, developed at the CERT Coordination Center at Carnegie Mellon University), FAIR (Factor Analysis of Information Risk), and the NIST Risk Management Framework (RMF). The NIST Risk Management Framework includes both risk assessment and risk management guidance.

NIST Risk Assessment Methodology

Federal regulators and examiners often refer to NIST SP 800-30 and SP 800-39 in their commentary and guidance. The NIST Risk Assessment methodology, as defined in SP 800-30: Guide to Conducting Risk Assessments, is divided into four steps: Prepare for the assessment, conduct the assessment, communicate the results, and maintain the assessment. It is unrealistic that a single methodology would be able to meet the diverse needs of private and public sector organizations. The expectation set forth in NIST SP 800-39 and 800-30 is that each organization will adapt and customize the methodology based on size, complexity, industry sector, regulatory requirements, and threat vector.

What Is Risk Management?

Risk management is the process of determining an acceptable level of risk (risk appetite and tolerance), calculating the current level of risk (risk assessment), accepting the level of risk (risk acceptance), or taking steps to reduce risk to the acceptable level (risk mitigation). We discussed the first two components in the previous sections.

Risk Acceptance

Risk acceptance indicates that the organization is willing to accept the level of risk associated with a given activity or process. Generally, but not always, this means that the outcome of the risk assessment is within tolerance. There may be times when the risk level is not within tolerance but the organization will still choose to accept the risk because all other alternatives are unacceptable. Exceptions should always be brought to the attention of management and authorized by either the executive management or the Board of Directors.

Risk Mitigation

Risk mitigation implies one of four actions—reducing the risk by implementing one or more countermeasures (risk reduction), sharing the risk with another entity (risk sharing), transferring the risk to another entity (risk transference), modifying or ceasing the risk-causing activity (risk avoidance), or a combination thereof.

Risk mitigation is a process of reducing, sharing, transferring, or avoiding risk. Risk reduction is accomplished by implementing one or more offensive or defensive controls in order to lower the residual risk. An offensive control is designed to reduce or eliminate vulnerability, such as enhanced training or applying a security patch. A defensive control is designed to respond to a threat source (for example, a sensor that sends an alert if an intruder is detected). Prior to implementation, risk reduction recommendations should be evaluated in terms of their effectiveness, resource requirements, complexity impact on productivity and performance, potential unintended consequences, and cost. Depending on the situation, risk reduction decisions may be made at the business unit level, by management or by the Board of Directors.

Risk transfer or risk sharing is undertaken when organizations desire and have the means to shift risk liability and responsibility to other organizations. Risk transfer shifts the entire risk responsibility or liability from one organization to another organization. This is often accomplished by purchasing insurance. Risk sharing shifts a portion of risk responsibility or liability to other organizations. The caveat to this option is that regulations such as GLBA (financial institutions) and HIPAA/HITECH (healthcare organizations) prohibit covered entities from shifting compliance liability.

Risk avoidance may be the appropriate risk response when the identified risk exceeds the organizational risk appetite and tolerance, and a determination has been made not to make an exception. Risk avoidance involves taking specific actions to eliminate or significantly modify the process or activities that are the basis for the risk. It is unusual to see this strategy applied to critical systems and processes because both prior investment and opportunity costs need to be considered. However, this strategy may be very appropriate when evaluating new processes, products, services, activities, and relationships.

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