When conducting a risk assessment, how is the annualized rate of occurrence (aro) calculated?

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In this first post, we will talk about how to compute Risk Assessment, one of the most important stages when you are conducting a (naturally)Risk Assessment.

Nội dung chính

But first what is Risk Assessment?Risk Identification and ManagementThe Risk-Management TeamAsset IdentificationThreat IdentificationRisk-Analysis MethodsHow is the annualized rate of occurrence ARO calculated?What is meant by annual rate of occurrence Aro?What is Aro in risk assessment?How do you calculate annualized loss rate?

But first what is Risk Assessment?

What is Risk Assessment? Well, Risk Assessment is the method used to giảm giá with threats, vulnerabilities and impacts of loss information. Most of organizations in the whole world have vulnerabilities which can impact directly on business process.

To take care of this, we use the Risk Assessment to measure how much the organization can lost if this threat turns real and if this vulnerability was exploited.

From the beginning you need to learn this formula:

SLE X ARO = ALE

Which means:

SLE = Single Loss Expectancy

ARO = Annualized Rate of Occurrence

ALE = Annual Loss Expectancy

What you need to understand is.

Single Loss Expectancy is money. The value you expect to lose any time when the risk turns real.

Annualized Rate of Occurrence is the chance of this risk turns real expressed in percentage.

Annual Loss Expectancy is the value which you will measure if the risk turns real in one year.

The Single Loss Expectancy is calculated by using two others variables which is:

AV X EF

Which means:

AV=Asset Value

EF=Exposure Factor

The Asset Value is how much this asset cost to the organization, how much money the organization will lost if this asset fail or to repair.

Exposure Factor is how long this asset stay in failure or how much time we must to spend to repair the situation.

Keeping this variables in mind we transform the original formula in something like (AV X EF) X ARO = ALE.

In example, if one service generates $10.000 per hour in revenue, the probability of this service failing during this year is esimated to be 10% and the failure would lead to 3 hours to downtime. What is the ALE?

Simple. The revenue which the service generates is the Asset Value (or $10.000 per hour) the Exposure Factor is 3 hours to downtime. This time, we just find the Single Loose Expectancy which is Asset Value times Exposure Factor or $10.000 X 3h which is $30.000 (this is ever about money, remember, the risk for organizations is about loose or don't make money). The last number or the percentage number is the Annualized Rate of Occurence or 10%. So all we just to do is to calculate the Single Loose Expectancy times Annualized Rate of Occurence which is $3.000. The Annual Loose Expectancy is $3.000.

Summarizing:

AV = $10.000

EF = 3 hours

SLE = AV X EF = $10.000 X 3 hours = $30.000

ARO = 10% or 0.10

ALE = SLE X ARO = $30.000 X 10 = $30.000 X 0.10 = $3.000

Then you just calculate Risk Assessment.

Hope it will be useful.

See you next post.

This chapter is from the book 

Risk Identification and Management

The first step in the risk-management process is to identify and classify the organization's assets. Information and systems must be assessed to determine their worth. When asset identification and valuation is completed, the organization can start the risk-identification process. Risk identification involves identifying potential risks and threats to the organization's assets. A risk-management team is tasked with identifying these threats. The team then can examine the impact of the identified threats. This process can be based on real dollar amounts or on gut feeling and intuition. When the impact is analyzed, the team can look alternatives for handling the potential risks. Risks can be:

Accepted—The risk is understood and has been evaluated. Management has decieded that the benefits outweigh the risk. As an example, the company might be considering setting up an e-commerce website. Although it is agreed that risks exist, the benefit of the added cash flow make these risks acceptable. Reduced—Installing a firewall is one method in which risk can be reduced. Transferred—The risk is transferred to a third party. As an example, insurance is obtained. Rejected—Depending on the situation, any one of the preceding methods might be an acceptable way to handle risk. Risk rejection is not acceptable, as it means that the risk will be ignored on the hope that it will go away or not occur.

The following sections look more closely each step of the process.

The Risk-Management Team

The risk-management team is tasked with identifying and analyzing risks. Its members should be assembled from across the company and most likely will include managers, IT employees, auditors, programmers, and security professionals. Having a cross-section of employees from the company ensures that the team can address the many threats it must examine.

This team is not created in a void; it requires developing a risk-management program with a purpose. As an example, the program might be developed to look ways to decrease insurance costs, reduce attacks against the company's website, or even verify compliance with privacy laws. After establishing the purpose of the team, the team can be assigned responsibility for developing and implementing a risk-management program. This is a huge responsibility because it requires not only identifying risks, but also implementing the team's recommendations.

Asset Identification

Asset identification is the task of identifying all the organization's assets. These can be both tangible and intangible. The assets commonly examined include:

HardwareSoftwareEmployeesServicesReputationDocumentation

When looking an asset, the team must first think about the replacement cost of the item before assigning its value. Actually, the value should be considered more than just the cost to create or purchase. These considerations are key:

What did the asset cost to acquire or create?What is the liability if the asset is compromised?What is the production cost if the asset is made unavailable?What is the value of the asset to competitors and foreign governments?How critical is the asset, and how would its loss affect the company?

Threat Identification

The risk-management team can gather input from a range of sources to help identify threats. These individuals or sources should be consulted or considered to help identify current and emerging threats:

Business owners and senior managers Legal counselHR representativesIS auditorsNetwork administratorsSecurity administratorsOperationsFacility recordsGovernment records and watchdog groups, such as CERT and Bugtraq

A threat is any circumstance or sự kiện that has the potential to negatively impact an asset by means of unauthorized access, destruction, disclosure, or modification. Identifying all potential threats is a huge responsibility. A somewhat easier approach is to categorize the common types of threats:

Physical threat/theftHuman errorApplication error/buffer overflowEquipment malfunctionEnvironmental hazardsMalicious software/covert channels

A threat coupled with a vulnerability can lead to a loss. Vulnerabilities are flaws or weaknesses in security systems, software, or procedures. An example of a vulnerability is human error. This vulnerability might lead an improperly trained help-desk employee to unknowingly give a password to a potential hacker, resulting in a loss. Examples of losses or impacts include the following:

Financial lossLoss of reputationDanger or injury to staff, clients, or customersLoss of business opportunityBreach of confidence or violation of law

Losses can be immediate or delayed. A delayed loss is not immediate; it has a negative effect on the organization after some period of time—in a few days, months, or years. As an example, an organization could have its website hacked and thus suffer an immediate loss. No e-commerce transactions would occur, technical support would have to be brought in to rebuild the web server, and normal processing would halt. All these are immediate losses. Later, when the local news channel reports that the company was hacked and that personal information was lost, the company would lose the goodwill of its customers. Some might remember this sự kiện for years to come and choose to use a competitor. This is a delayed loss.

Thus far, we have discussed building a risk-management team that has the support of senior management, identifying tangible and nontangible assets, and performing threat identification. Next, we analyze the potential risks that these threats pose.

Risk-Analysis Methods

After identifying the threats, the team can start to focus on the risk-analysis process. Risk analysis can be performed in one of two basic methods:

Quantitative risk assessment—Deals with dollar amounts. It attempts to assign a cost (monetary value) to the elements of risk assessment and the assets and threats of a risk analysis. Qualitative risk assessment—Ranks threats by nondollar values and is based more on scenario, intuition, and experience.

Quantitative Risk Assessment

Performing a quantitative risk assessment involves quantifying all elements of the process, including asset value, impact, threat frequency, safeguard effectiveness, safeguard costs, uncertainty, and probability. This involves six basic steps, illustrated in Figure 2.5:

Determine the asset value (AV) for each information asset. Identify threats to the asset. Determine the exposure factor (EF) for each information asset in relation to each threat. Calculate the single loss expectancy (SLE). Calculate the annualized rate of occurrence (ARO). Calculate the annualized loss expectancy (ALE).

The advantage of a quantitative risk assessment is that it assigns dollar values, which is easy for management to work with and understand. However, a disadvantage of a quantitative risk assessment is that it is also based on dollar amounts. Consider that it's difficult, if not impossible, to assign dollar values to all elements. Therefore, some qualitative measures must be applied to quantitative elements. Even then, this is a huge responsibility; therefore, a quantitative assessment is usually performed with the help of automated software tools. Assuming that asset values have been determined as previously discussed and threats have been identified, the next steps in the process are as follows:

Much of the process of quantitative risk assessment is built upon determining the exposure factor and the annualized loss expectancy. These rely heavily on probability and expectancy. When looking events, such as storms or other natural phenomena, it can be difficult to predict their actual behavior. Yet over time, a trend can be established. These events can be considered stochastic. A stochastic sự kiện is based on random behavior because the occurrence of individual events cannot be predicted, yet measuring the distribution of all observations usually follows a predictable pattern. In the end, however, quantitative risk management faces challenges when estimating risk, and as such must rely on some elements of the qualitative approach.

Another item that is sometimes overlooked in quantitative risk assessment is the total cost of a loss. The team should review these items for such costs:

Lost productivityCost of repairValue of the damaged equipment or lost dataCost to replace the equipment or reload the data

When these costs are accumulated and specific threats are determined, the true picture of annualized loss expectancy can be assessed. Now the team can build a complete picture of the organization's risks. Table 2.2 shows sample results.

Table 2.2. Sample Assessment Results

Asset

Risk

Asset Value

EF

SLE

Annualized Frequency

ALE

Customer database

Loss of consumer data due to no backup

$118,000

78.06%

$92,121

.25

$23,030

E-commerce website

Hacked

$22,500

35.50%

$8,000

.45

$3,600

Domain controller

Power supply failure

$16,500

27.27%

$4,500

.25

$1,125

Although automated tools are available to minimize the effort of the manual process, these programs should not become a crutch to prevent businesses from using common sense or practicing due diligence. Care should also be taken when examining high-impact events, even for the probability. Many of us witnessed the 100-year storm that would supposedly never occur in our lifetime and that hit the Gulf Coast and severely damaged the city of New Orleans. Organizations must be realistic when examining such potential events and must openly discuss how the situation should be dealt with. Just because an sự kiện is rated as a one-in-a-hundred-year probability does not mean that it can't happen again next year.

Qualitative Risk Assessment

Maybe you're thinking that there has to be another way to perform the assessment. If so, you're right. Qualitative assessment is scenario driven and does not attempt to assign dollar values to components of the risk analysis. A qualitative assessment ranks the seriousness of threats and sensitivity of assets by grade or class, such as low, medium, or high. You can see an example of this in NIST 800-26, a document that uses confidentiality, integrity, and availability as categories for a loss. It then rates each loss according to a scale of low, medium, or high. Table 2.3 displays an example of how this process is performed. A rating of low, medium, or high is subjective. In this example, the following categories are defined:

Low—Minor inconvenience; can be tolerated for a short period of time but will not result in financial loss. Medium—Can result in damage to the organization, cost a moderate amount of money to repair, and result in negative publicity. High—Will result in a loss of goodwill between the company, client, or employee; may result in a large legal action or fine, or cause the company to significantly lose revenue or earnings.

Table 2.3. Performing a Qualitative Assessment

Asset

Loss of Confidentiality

Loss of Integrity

Loss of Availability

Customer credit card and billing information

High

High

Medium

Production documentation

Medium

Medium

Low

Advertising and marketing literature

Low

Low

Low

HR (employee) records

High

High

Medium

The downside of performing a qualitative assessment is that you are not working with dollar values; therefore, this lacks the rigor that accounting teams and management typically prefer.

Other types of qualitative assessment techniques include these:

The Delphi Technique—A group assessment process that allows individuals to contribute anonymous opinions. Facilitated Risk Assessment Process (FRAP)—A subjective process that obtains results by asking a series of questions. It places risks into one of 26 categories. FRAP is designed to be completed in a matter of hours, making it a quick process to perform.

How is the annualized rate of occurrence ARO calculated?

Annualized rate of occurrence (ARO) is described as an estimated frequency of the threat occurring in one year. ARO is used to calculate ALE (annualized loss expectancy). ALE is calculated as follows: ALE = SLE x ARO. ALE is $15,000 ($30,000 x 0.5), when ARO is estimated to be 0.5 (once in two years).

What is meant by annual rate of occurrence Aro?

Annual rate of occurrence (ARO) – expected number of an incident's occurrences during a calendar year. For rare incidents, it is equivalent to a probability of one or more incidents during a year; for frequent incidents, it is equivalent to the expected number of incidents per year.

What is Aro in risk assessment?

The threat frequency (or likelihood) for natural disasters can be calculated by using an Annualized Rate of Occurrence (ARO). An ARO is a constant number that tells you how often a threat might occur each year.

How do you calculate annualized loss rate?

It is mathematically expressed as: Suppose that an asset is valued $100,000, and the Exposure Factor (EF) for this asset is 25%. The single loss expectancy (SLE) then, is 25% * $100,000, or $25,000. For an annual rate of occurrence of 1, the annualized loss expectancy is 1 * $25,000, or $25,000. Tải thêm tài liệu liên quan đến nội dung bài viết When conducting a risk assessment, how is the annualized rate of occurrence (aro) calculated?

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What is meant by annual rate of occurrence Aro?

What is Aro in risk assessment?

How is SLE and ARO calculated?

How is annualized loss expectancy calculated?