Risk management is the collective process of identifying, analyzing and mitigating potential risks to an organization’s operational and financial operations. While the term “risk” has developed many negative connotations over time, it isn’t inherently bad. Risk is necessary for growth, and playing it too safe can lead to stagnation. This is where a risk management framework (RMF) comes in.
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A sound RMF helps organizations balance risk mitigation and tolerance, allowing them to come out on top — at least most of the time.
Most organizations, especially in the IT and financial sectors, have adapted to modern risk management practices and use risk management or GRC software to navigate risk in day-to-day operations. An efficient RMF is the heart of your risk management strategy, and you need to fine-tune it to meet your company’s specific needs.
What This Article Covers:
- What Is a Risk Management Framework?
- Importance
- Primary Benefits
- Key Components
- Implementation Steps
- Common Examples
- Conclusion
What Is a Risk Management Framework?
A risk management framework is a structured set of management goals and guidelines that define how an organization will interact with information security, privacy and risk. The National Institute of Standards and Technology (NIST) developed the original risk management framework to help both federal and private organizations comply with the Federal Information Security Modernization Act (FISMA).
Since its inception, the framework has undergone many changes and has been adopted and reworked for multiple industries. However, its core directive remains the same — to develop the best practices and processes necessary to protect the company’s operational and financial interests.
Developing and adopting a risk management framework is a continuous process. It’s top-down in its implementation and requires close collaboration between the risk management department and senior executives. The aim is to develop a framework that can use historical data to analyze and predict risk behavior with a high degree of accuracy. An ideal RMF can lead to healthier financials without compromising growth opportunities.
Importance
Irrespective of what sector you’re in, the last few years have been tumultuous, to say the least. Cyber threats have progressively become more advanced, and a global pandemic has disrupted supply chains worldwide. The risk landscape is continuously evolving, leading to more complex threats, including financial, legal, contractual, political and operational. Issues of data security and privacy are all the more important for companies within the IT sector that deal with large amounts of information daily.
A high-functioning IT risk management framework can accommodate an organization’s projects and operational parameters to deliver actionable results. It can protect you and your assets from threats while identifying positive risk opportunities to ensure growth and scalability. In the long term, it’s supposed to help cultivate a better understanding of risk and risk-aware work culture.
In essence, this framework is a set of rules and regulations; however, if followed correctly, it significantly improves an organization’s risk-to-reward ratio, leading to long-term success.
Primary Benefits
Even though NIST designed the original RMF for use by federal information systems, its benefits also extend to other major industries. This section will discuss these benefits and what they could mean for organizations:
Protect Assets in Real Time
Depending on the industry, organizations own specific assets that need protection from internal and external threats. These assets store and process a large number of information specific to particular sectors. For example, companies operating in the healthcare and financial sectors store their clients’ confidential information. Failure to protect these assets satisfactorily can result in massive data leaks hurting the company’s and its clients’ interests.
The framework understands and identifies potential threats arising from the company’s assets. Cognition of the risk can allow you to prepare a mitigation plan and respond in time before permanent damage.
Stay Ahead of Supply Chain Interruptions
A well-designed risk management framework has access to all your organization’s domains and can best identify potential weaknesses in critical processes. With access to internal and external information sources, it can predict risk behavior to prepare an early warning system.
It analyzes information from multiple sources to identify critical dependencies on different sections of the supply chain. That way, you can know in advance if any major interruptions are on the horizon and make necessary adjustments to minimize business disruptions.
Safeguard Your Company’s Reputation
In this day and age, your brand image is important. You should always be aware of your executive decisions’ consequences on your company’s reputation. The framework can help you monitor your company’s current brand image and predict the potential fallout of different decisions.
Key Components
Any risk management framework worth its salt has to include at least five core components to ensure maximum efficiency and effective results. While these components will differ slightly from industry to industry, their core directives will remain the same.
Identification
Risk identification is the first component of any risk management process. In order to effectively detect and mitigate vulnerabilities, a company must first be aware of all the different types of risks it’s vulnerable to. Therefore, the first task of any IT risk management framework is to establish a risk directory with a complete taxonomy.
Risk management departments can categorize any risks, threats and vulnerabilities based on their potential impact and ability to disrupt critical business processes. Once you understand which risks are more likely to happen and what conditions can lead to lapses, you can design a framework to address those vulnerabilities specifically.
Assessment
This risk measurement component is essential to understanding and scoring potential risk events. You can develop the framework to classify risks based on many factors, including likelihood, risk exposure, severity and more. The end goal is to create detailed risk profiles of recorded threats and vulnerabilities along with a composite risk score.
It plays a crucial role in determining the priority of risk mitigation actions, allowing the system to quickly and accurately identify which vulnerabilities to address first.
Mitigation
All risks are not made equal, and every risk you identify won’t warrant the same response and resources as the more pressing ones. You can prepare a mitigation or control library of how to deal with identified risks. Previously determined risk scores will determine which risks will receive priority attention and in what order.
All risks are not bad, and positive risks offer opportunities for growth and expansion. Depending on the results of risk assessment processes, you can add these positive risks as exceptions to not be mitigated by traditional means.
Reporting and Monitoring
Your framework will lose performance and efficiency without routine reporting and monitoring. This fact is especially true for IT risk management frameworks that deal with new and emerging risks every other day.
Run regular reports on the performance of your risk identification, assessment and mitigation processes to see if they are performing within expectations. Keep an eye on your company’s risk exposure and benchmark your performance against industry peers.
Governance
Lack of proper governance can cripple even the best risk management frameworks. Risk governance insures you from disruptions caused by employee turnover and ensures there’s always a structure to fall back on. You can define the roles, tasks and responsibilities of involved stakeholders, executives and personnel. It ensures your risk management program functions flawlessly, come what may.
Implementation Steps
The risk management framework works with your risk management department to identify risks. Primarily, we can break down this process into six fundamental steps:
1. Categorize Information Systems
To get the ball rolling, you have to first categorize your IT systems based on your organization’s primary objectives, financial goals and industry. You can follow the NIST standards outlined in FIPS 199 to understand security categorizations and potential impacts better. This step makes it easier to identify which information and data systems require the highest level of protection from internal and external vulnerabilities.
2. Select Security Controls
NIST has prepared an extensive library of security controls for use by IT systems all over the world. You can select controls necessary to protect the organization’s assets based on your security categorization.
3. Implement Security Controls
Once you have selected security controls suitable for your IT systems, you must implement them. If they perform well within expectations and maintain all necessary regulatory requirements, you can move to the next step. Otherwise, you’ll need to select a new set of controls for your infrastructure.
4. Assess Security Controls
Now that the hard part is over, you have to assess the performance of your security controls to ensure they are consistently performing according to assured standards. You can either do this individually or hire independent contractors to try and identify any vulnerabilities in your controls.
5. Authorize Information Systems
If all previous steps have returned satisfactory results so far, you can go ahead and authorize the IT risk management framework for company-wide implementation. If other stakeholders and executives are involved in the process, make sure to get their authorization as well.
6. Monitor Security Controls
This is less of a step and more of a continuous process. Once you have authorized the framework, you must continuously monitor and evaluate security controls. Look for any drops in efficiency, loss of performance, risk incidents and changes in risk exposure. Document and record all changes to ensure you can correct them and continue to safeguard your IT assets in the long run.
Common Examples
There are multiple enterprise risk management (ERM) frameworks that exist to help organizations navigate internal and external risks daily. They provide a set of guiding principles for defining and managing risk-related tasks across multiple industries.
In this section, we’ll discuss a few risk management framework examples that can guide a custom RMF:
NIST
The National Institute of Standards and Technology (NIST) created this RMF on behalf of the U.S. Department of Commerce to act as a risk management guide for private agencies and companies that conduct business with the government. It’s globally accepted as a robust risk management framework, especially concerning cybersecurity.
This framework has five core functions to address cybersecurity risk across all tiers of an organization. These include:
- Identify: It identifies internal and external vulnerabilities, IT assets and active cybersecurity policies to determine the best risk management strategy within a particular business environment.
- Protect: This functionality applies necessary safeguards and security controls to protect the IT infrastructure from risk events. Use thorough security awareness and data security protection to create risk awareness in day-to-day activities and improve risk resilience.
- Detect: It leverages real-time threat monitoring capabilities to detect anomalies and risk events.
- Respond: Determine how your risk management program will respond to detected cybersecurity events. It ensures the system correctly implements prepared risk response measures. Additionally, it manages communications between stakeholders and analyzes the impact of risk events to determine if recovery activities are necessary.
- Recover: This module guarantees your company can recover from cybersecurity incidents with minimum disruption to business procedures. It seeks to quickly restore parts of the system damaged by risk events and build long-term risk resilience.
COBIT
This framework is the brainchild of the Information Systems Audit and Control Association (ISACA). It has five fundamental principles to guide effective risk management in IT systems:
- Meet stakeholder requirements.
- Insulate the entire enterprise from end to end.
- Develop a single integrated framework for the entire organization.
- Encourage operational efficiency with a holistic approach.
- Ensure risk governance and management remain discrete processes.
COSO
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) created this ERM framework to help organizations maximize value and growth opportunities. You can seamlessly implement it alongside any existing ERM software without any conflicts. It has five operational components:
- Governance and Culture: Create a prolific governance policy and risk-aware work culture. Both risk governance and setting an appropriate work culture are top-down in their implementation.
- Strategy and Objective Setting: Determine key performance indicators (KPI) based on the organization’s risk threshold and exposure.
- Performance: Identify potential risk events that can negatively impact the organization’s performance and administer the necessary security controls.
- Review and Revision: Review the ERM framework’s performance from time to time to ensure it’s performing as expected and make revisions if necessary.
- Information, Communication and Reporting: Maintain a clear and continuous line of communication between internal and external stakeholders.
Conclusion
Risk management is a continuous and unrelenting task, but it can benefit your entire organization if done correctly. The risk management framework lies at the center of any risk management program, and it needs to be effective for your business to remain competitive.
So take all the time you need to understand what it does and what the different steps are before you get into the thick of it. It’s a mammoth task, but if you’ve stuck it out so far, we’re sure you can do it. We hope this guide can provide you with all the resources necessary to build your risk management framework.
Did we forget to cover anything else you wanted to know about risk management frameworks? Which security controls are the most effective for your business? Let us know in the comments.
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