What is Cyber Risk Quantification (CRQ)?

In today's interconnected world, cyber risk is a major concern for organizations of all sizes. Cyberattacks and data breaches can have devastating consequences, both financially and in terms of reputational damage. It's therefore essential for organizations to have a clear understanding of their cyber risk exposure so that they can take appropriate measures to mitigate it. Cyber Risk Quantification (CRQ) is an emerging field that aims to provide a quantitative approach to cyber risk management. In this post, we'll explore what CRQ is, why it's important, and how it can be implemented.

What is Cyber Risk Quantification (CRQ)?

Cyber Risk Quantification (CRQ) is the process of measuring, analyzing, and communicating cyber risk in financial terms. It involves assessing the probability and potential impact of various cyber threats and vulnerabilities and then translating that information into financial metrics that can be easily understood by senior management and other stakeholders. CRQ is based on the premise that organizations need to treat cyber risk in the same way that they treat other types of business risk, such as credit risk or market risk.

(1.) Cyber risk quantification uses (obviously) quantitative values as inputs, and produces quantitative values for the probability of cyber loss events and their impacts. For example, loss event probability is expressed as a percentage (e.g., 10% probability of occurrence in the next 12 months) or a frequency (e.g., two times per year). Magnitude is expressed as a loss of monetary value (e.g., $1.5M).

Why is CRQ important?

There are several reasons why CRQ is becoming increasingly important for organizations:

1. To enable better decision-making

CRQ provides organizations with a quantitative basis for decision-making when it comes to cyber risk management. By understanding the financial impact of different cyber risks, organizations can prioritize their cybersecurity investments more effectively, and make more informed decisions about risk mitigation strategies.

2. To meet regulatory requirements

Regulators are increasingly demanding that organizations have a robust approach to cyber risk management and that they are able to quantify their cyber risk exposure. For example, the New York Department of Financial Services (NYDFS) Cybersecurity Regulation requires covered entities to conduct a risk assessment that includes "an evaluation of the effectiveness of existing cybersecurity controls and the impact of any identified vulnerabilities." CRQ can help organizations to comply with these types of regulatory requirements.

3. To communicate with stakeholders

Senior management and other stakeholders often struggle to understand cyber risk in technical terms. By translating cyber risk into financial metrics, organizations can more effectively communicate the impact of cyber risk to stakeholders, and demonstrate the effectiveness of their cyber risk management program.

How is CRQ implemented?

CRQ involves a number of steps, including:

1. Identify and classify assets

The first step in CRQ is to identify and classify the assets that are critical to the organization's business operations. This may include IT systems, databases, applications, and other digital assets.

2. Identify threats and vulnerabilities

Once the critical assets have been identified, the next step is to identify the potential cyber threats and vulnerabilities that could impact those assets. This may involve conducting a threat assessment, reviewing industry reports and threat intelligence feeds, and consulting with cybersecurity experts.

3. Assess the likelihood and impact of each threat

The next step is to assess the likelihood and potential impact of each identified threat. This may involve using a quantitative or qualitative approach, depending on the organization's risk appetite and the availability of data.

4. Calculate the overall cyber risk exposure

Once the likelihood and potential impact of each threat has been assessed, the next step is to calculate the organization's overall cyber risk exposure. This may involve using a cyber risk quantification model, which takes into account the likelihood and potential impact of various threats and vulnerabilities, as well as the organization's risk appetite and tolerance.

5. Prioritize risk mitigation strategies

Based on the organization's overall cyber risk exposure, the next step is to prioritize risk mitigation strategies. This may involve implementing technical controls such as firewalls, intrusion detection systems, and endpoint protection, as well as non-technical controls such as policies, procedures, and employee training.

6. Monitor and update risk assessment

Finally, it's important to monitor and update the cyber risk assessment on an ongoing basis. Cyber threats are constantly evolving, and the organization's risk exposure may change as a result. Regular risk assessments can help to ensure that the organization's cyber risk management program remains effective over time.

(2.) The April 2022 SANS/Kovrr survey of 98 security professionals ranging from small to large businesses showed primary uses of CRQ including 72.4% for cyber budget allocation, 70% for board reporting and governance, 67% for cyber insurance and risk transfer options, 27% for M&A cyber due diligence, and 17% for capital reserve and management strategy. The same survey noted respondents intend to use CRQ to increase routine risk assessments from an annual cycle to a more frequent approach, and 80% of surveyed organizations felt that they would use CRQ outputs to increase their investment in security spending over the next 18 months.

Challenges of CRQ

While CRQ has the potential to be a powerful tool for cyber risk management, there are several challenges that organizations may face when implementing a CRQ program:

1. Lack of data

One of the biggest challenges with CRQ is the lack of data. Unlike other types of business risk, such as credit risk or market risk, there is often limited historical data available to assess cyber risk. This can make it difficult to accurately assess the likelihood and potential impact of different cyber threats and vulnerabilities.

2. Difficulty in quantifying impact

Another challenge with CRQ is the difficulty in quantifying the impact of a cyberattack or data breach. The impact of a cyber incident can vary greatly depending on the type of attack, the nature of the organization's business, and the data that is affected. This can make it difficult to accurately assess the financial impact of a cyber incident.

3. Complex systems and processes

Cyber risk assessments can be complex and may require specialized expertise in areas such as cybersecurity, risk management, and financial modeling. This can make it difficult for organizations to implement a CRQ program, particularly if they don't have the necessary resources in-house.

(8.) What’s the biggest cybersecurity question in the C-suite?

It depends on whom you ask. While enterprise-level CRQ is useful, decision-makers and implementers need a consistent model to quantify risks through a prism tailored to their own business scenarios and priorities. For example, while a chief financial officer (CFO) can better relate to cyber risks placed in the context of impact on large financial transactions, the chief risk officer (CRO) might prefer a view of cyber risks parsed and correlated against broader enterprise risks.

What question best summarizes your particular need for CRQ?

Board:?"Are we investing in the right security capabilities to properly protect our assets?"

CFO:?“Do we have sufficient cyber insurance coverage?”

CEO:?"How do we show the value of security while managing costs?"

CIO:?"What is the expected financial loss, considering our cyber risk exposure?"

CRO:?"What initiatives should we prioritize to maximize riskbuy down?"

Business leader:?"How could our cyber risk exposure affect our business processes?"

Conclusion

Cyber Risk Quantification (CRQ) is an emerging field that aims to provide a quantitative approach to cyber risk management. CRQ can help organizations to prioritize their cybersecurity investments more effectively, comply with regulatory requirements, and communicate the impact of cyber risk to stakeholders. However, there are several challenges that organizations may face when implementing a CRQ program, including the lack of data, difficulty in quantifying impact, and complex systems and processes. Despite these challenges, CRQ has the potential to be a powerful tool for managing cyber risk in today's interconnected world.

Sources:

1. What Is Cyber Risk Quantification (CRQ) and How Does It Help Risk Management Decisions? (fairinstitute.org)
2. Cyber Risk Quantification: Lessons Learned | Optiv
3. Demystifying Cyber Risk Quantification (CRQ) And Why You Need It | Axio Global
4. CRQ 101: What is Cyber Risk Quantification? (safe.security)
5. What is Cyber Risk Quantification? An Analysis of Financial Impact | UpGuard

6. Cyber risk quantified and managed: PwC

7. The Complete Guide to Cyber Risk Quantification (cyesec.com)

8. Quantifying Cyber Risk to Chart a More Secure Future | Deloitte US