There is no reward without risk – this fact applies to both individuals and organisations, and the question for the latter is how much risk they are willing to take. Risk appetite defines a company’s willingness and the amount of risk it can shoulder for its particular business objectives. Another term that is closely related to risk appetite is risk tolerance. This wholly different concept pertains to how much risk an organisation is willing to accept at any time in pursuit of said objectives.

The necessity of identifying risk appetite

The core benefit of determining this metric is that it helps businesses understand the potential payoffs of the risks they may take. The parameters established by a given company to decide its risk appetite increases the efficiency of its future cybersecurity risk management efforts. As their operations grow and their operational risk management evolves, so will their risk-reward calculations follow suit. A living risk appetite is important to maintain as it enables swift adaptation to new conditions or adjustment of the company’s risk tolerance to achieve better growth opportunities.

An overview of calculating cyber risk appetite

The organisation’s top management – key stakeholders, board of directors, CISO, and so on – must all be involved in calculating risk appetite. The first step is to prioritise the top business objectives, followed by an analysis of the possible scenarios where the risks do not pay off; how much damage is tolerable should the risk taken not produce results? Lastly, define the potential positives that can be expected and hoped to be achieved for the risk-taking involved.

A low-risk appetite will be necessary for specific objectives where the consequences of failure simply cannot be allowed. Otherwise, a higher-risk appetite is recommended if the business can continue its day-to-day functions despite the potential loss. Communicating with the board of directors is essential to ensure that any high-level decisions will be based on the risk appetite put in place, and drafting a risk appetite statement can confirm that this process is enforced and efficient.

Creating a cyber risk appetite statement

Upon settling on a cyber risk appetite for all relevant strategic business objectives, it is vital to summarise the decision-making process. This executive summary must include everything the team agreed on and the measures and internal controls necessary to mitigate the risks in pursuing the objectives.

This cyber risk statement is best treated as a living document that top management returns to every few months to revisit decisions and append updates to accommodate new business objectives, improved risk tolerances, and emerging threats.

How risk is calculated in cybersecurity

Cybersecurity risk is the potential harm to a business’s essential assets, sensitive data, reputation, or finances, typically arising from data breaches and cyber-attacks. Some cyber habits, technologies, or techniques are more serious than others. Take, for instance, the difference between a static website and a dynamic one that requires private information. The former has a smaller technology risk than the latter, which has more danger involved in its functioning.

Although risk assessments regarding cybersecurity may have a narrow focus or cover the entire business in its scope, they still involve the same choices and stages, including risk identification, mitigation, treatment, and impact analysis. Organisations can implement such elements to establish their risk exposure rating or score.

These scores are indispensable tools that help companies explain and assess their current security posture as these ratings determine the severity and inherited hazards of each asset to enable prioritising the most important ones. The results are organised into a risk matrix so assets can be categorised from low-risk to highly critical. The rating generally comes with an executive summary that helps explain the total level of risk to those not well-versed in the technical details.

For example, businesses should evaluate the risk rating for their IT assets and services like online applications, physical security, data storage, internet devices, and so on. Upon understanding their risk scores, they can create a concrete roadmap for fixing vulnerabilities and enhancing their overall cybersecurity posture.

Conclusion

Not every company can cover all their cybersecurity bases to achieve their objectives at the start. As such, it is pivotal for them to establish a cyber risk appetite to understand which aspects of their digital security should have no compromises now and those that can be improved on as the business grows.

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