ANSI Launches Guide to Help Calculate Cyber Security Risk

The American National Standards Institute (ANSI) and the Internet Security Alliance today issued a guide designed to help enterprises calculate the risks and costs associated with data security breaches.

The new 40-page guide, entitled "The Financial Impact of Cyber Risk: 50 Questions Every CFO Should Ask" offers advice on measuring the cost of security breaches and how enterprises should prepare for data compromise.

There have been many "risk calculators" and papers on security return on investment published in recent years, but this is the first to be issued by a standards group like ANSI, which has helped set IT standards in the U.S. for decades. As a result, the guide will likely get a close review by many organizations, particularly those that use ANSI standards in other parts of their business.

In a nutshell, the guide advocates that organizations calculate cyber security risks and costs by asking questions of every organizational discipline that might be affected: legal, compliance, business operations, IT, external communications, crisis management, and risk management/insurance. The idea is to involve everyone who might be affected by a security breach and collect data on the potential risks and costs.

Once all of the involved parties have weighed in, the guide offers a mathematical formula for calculating financial risk: Essentially, it is a product of the frequency of an event multiplied by its severity, multiplied by the likelihood of its occurrence. If risk can be transferred to other organizations, that part of the risk can be subtracted from the net financial risk.

If an organization can accurately calculate the potential risk associated with a particular attack or event, it can use that data to decide what "risk management actions," if any, need to be taken, the guide says. The idea is to make informed decisions on what security technologies or strategies are truly worth the investment, based on the risks associated with a specific type of threat.

This calculation can also make it easier for organizations to decide whether they need breach insurance coverage, and if so, how much they should purchase, the guide says.

"The key to understanding the financial risks of cyber security [breaches] is to fully embrace its multi-disciplinary nature," the guide says. "Cyber riski is not just a 'technical problem' to be solved by the company's CTO."

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