Original URL: http://www.theregister.co.uk/2011/10/24/risk_tolerance/
So many risks, so little time
The tolerance test
How much risk can your IT department tolerate? There’s always going to be a certain amount of it. The trick is working out where to put it so that it causes the least damage. And to do that, you need to understand how risk fits into the broader world outside the IT department.
There are various types of risk facing a company, and a good IT manager will be aware of all of them, because they all touch the IT department, either directly or indirectly, whether operational, physical, financial, or reputation-based.
Operational risk can be divided into internal and external dangers. Internal operational risk revolves around people, process, and technology (what happens if your callcentre’s CRM application goes belly-up?), while external risk will often focus on partners (what happens if your cloud services provider collapses?).
Not all risk is digital. Physical risks can also have an impact on the IT department, and therefore on the broader business. If someone can easily tailgate their way into a building, then they are taking advantage of such a risk. So is someone who leaves a laptop unattended and asleep but logged in, in a drawer.
Risks in different categories, such as physical and logical, can often be interconnected and exploited by the wily to create attacks. Our tailgater might insert a USB key into a desktop PC and steal a collection of unencrypted customer details, or a thief may steal our unattended laptop, which may in turn trigger a governance and compliance risk.
These can be serious, incurring massive fines, or potentially restricting your operations. When Nationwide Bank was fined £980,000 for failing to secure sensitive customer data on a laptop in 2007, it was the result of a neglected compliance risk that created a financial risk. Other financial risks could be as simple as a set of invoices being duplicated, due to an accounting system bug, resulting in too many shipments, and over-stating of sales.
Brand risk is closely allied with both reputational risk, and intellectual property risk. If you’re Research in Motion watching your server infrastructure collapse, and your CEO has to publish a video apology admitting that he doesn’t know when people will be able to access their phones’ features again, that’s a threat to your brand stemming from reputational damage, which stems in turn from a computing SNAFU of royal proportions.
The smart IT manager will understand the holistic nature of these risks, and will also see that the worst risks occur at the edges of peoples’ responsibility. Who is responsible for encrypting data on a laptop? Is it the employee, or the person creating the central laptop build?
Running root cause analysis on the potential risks can help you to identify the roles and responsibilities necessary to mitigate them. IT will also help you to measure your existing processes against baseline performance metrics. If your software testing processes don’t measure up, then it may create an enhanced risk of software error that could feed through into financial risk for the company.
Brainstorming the potential risks and understanding what roles and responsibilities are necessary to mitigate them sets you up to deal with them. An enterprise risk management framework should ideally incorporate business units other than just the IT department. In an ideal world, a chief security officer for the organisation as a whole would be able to co-ordinate an ERM. They would be able to decide what tolerance existed for certain risks, which would give the business units, such as IT, something to work with.
An IT department properly versed in corporate risk tolerance can then chart the probability associated with certain risks, along with their impact on broader corporate risk. Not all risks are created equal: an older server may have a relatively high chance of failing, but the application running on it may not be critical to the organisation.
Understanding the criticality of each risk, along with the cost of mitigating it, empowers you to make a decision about how to plan for it. Do you avoid the risk altogether (which may be expensive and involve the use of redundant systems), transfer it to someone else (such as a partner, or perhaps a customer), mitigate it by understanding that it may happen but doing your best to prevent it, or simply accept it as a fact of life? Making this decision up front about the risks challenging your IT department will put you in a better place when it comes to IT governance, and accountability to the rest of the organisation.