Editor’s note:The following is a sponsored blog post from AuditBoard.
The collective impact of the last two decades of rapid digital transformation across consumer culture and the business world culminated on 5 September 2023 – the day the US Securities and Exchange (SEC) new rules around Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure went into effect. These historic new rules require SEC registrants to disclose their cybersecurity risk management and governance processes, beginning with annual reports for fiscal years ending on or after 15 December 2023. In addition, Form 8-K Item 1.05 requires all registrants (other than smaller reporting companies) to begin disclosing material cybersecurity incidents within four business days starting on 18 December 2023.
These new rules have forced organizations to transform their IT risk programs from the top down by requiring executive leadership and the board of directors to effectively identify and assess cybersecurity risk impacts to the business. As such, registrants that 1) do not have a cybersecurity risk assessment program in place, or 2) are unable to identify their IT risks will quickly need to establish these functions and capabilities within their organizations. Private companies are not totally safe writing these new rules off either, as those that are third parties to public companies can potentially be liable for any cyber incidents impacting their public partners.
A recent poll of over 4,000 IT risk professionals, conducted at AuditBoard’s IT Risk Now conference, found that 52% of respondents are conducting some form of risk quantification. As October is Cybersecurity Awareness Month, and with the December 2023 compliance dates quickly approaching, this blog post will discuss the importance and benefits of establishing an effective risk quantification process in addition to describing three tips for getting started.
Determining Materiality of Cybersecurity Risks: Why Risk Quantification Matters
In order to determine the materiality of a cybersecurity incident or risk, it is necessary for businesses to establish an effective process for quantifying their IT risks. Risk quantification is the process of defining a risk’s impact on the business in terms of a specific value, often in terms of dollars. For example, take the risk of your business’s customer relationship management (CRM) software losing all of its customer data. Categorizing the business impact in terms of dollars — financial loss or loss of new business — is impactful, clear to understand, and helps to set a common context in stakeholder reporting. When set up properly, risk quantification can be an iterative, continuous process that empowers businesses to proactively manage risks, protect valuable assets, and maintain a competitive edge in an ever-evolving landscape of threats and challenges.
Three Tips When Getting Started with Risk Quantification
With the December reporting deadlines quickly approaching, affected companies that are not already assessing their IT risks have work to do — although many often don’t know where to start. The following are three tips for getting started:
- Understand the myth-based barriers to risk quantification. Often, the biggest barriers to getting started are narratives based on a poor understanding of risk quantification itself. One of the biggest myths is that the only “right” way to quantify risks is by implementing the Factor Analysis of Information Risk (FAIR) model. While FAIR is a highly useful quantitative risk analysis model that represents an excellent framework goal for businesses to work toward, it is a time-consuming process that can stretch out for a year or more. A poll conducted at AuditBoard’s IT Risk Now conference found only 5% of respondents are utilizing FAIR, 24% are using NISTRMF, and 25% are using other methods to quantify their risks. This helps to illustrate the fact that while most businesses do not have the resources or time for FAIR, they can still take steps to quantify their risks. The biggest takeaway is that there are many paths to risk quantification.
- Don’t start from scratch — use what you already have. Risk quantification builds upon any qualitative risk assessment your business currently performs. Rather than starting “from scratch,” audit, ITb and InfoSec teams can begin extracting data sources and data streams that can be used for risk quantification from existing risk assessment data collected in the course of complying with IT security requirements and frameworks like ISO, NIST and PCI DSS. “Building the airplane in mid-air” is a turn of phrase that applies here: get comfortable with building your cybersecurity risk program while assessing and evaluating your risks. To learn more, see AuditBoard’s 7 Steps to Get Started with Asset Data Quantification Checklist.
- Technology is a critical resource. Technology is one of the most important considerations for establishing an effective risk quantification process ahead of the December deadlines, largely because existing risk management resources typically fall short in providing risk teams with accurate and reliable data for their cybersecurity risk efforts. Not only can leveraging IT risk management technology help kick-start your risk quantification efforts, the right solution can enable audit, IT risk and security teams to organize and streamline their risk quantification processes and automatically connect the dots between their data. Ideally, the more efficiencies introduced by technology, the more risk quantification work you can perform — and the more efficiently you can improve your feedback.
The Most Important Step in Risk Quantification Is Getting Started
By leveraging your organization’s existing IT risk data, you can start building the necessary infrastructure for an effective cybersecurity risk management process. Doing so is not only beneficial for compliance with the SEC’s new rules but can empower your business to prioritize its IT risk management efforts, better manage its cybersecurity risks and enable leadership to make better, risk-informed decisions. Learn how AuditBoard’s ITRM solution helps teams quantify their cybersecurity risks by requesting a tailored demo here.