Quantitative risk analysis involves numerical values to assess and manage risk. It uses specific calculations to determine the financial impact of risks and the effectiveness of risk mitigation strategies. Here’s a summary of key concepts and formulas for quantitative risk analysis:

Key Concepts

1. Single Loss Expectancy (SLE)
   • Definition: The dollar amount expected to be lost from a single occurrence of a risk.
   • Formula: SLE=Asset Value×Exposure Factor (EF)\text{SLE} = \text{Asset Value} \times \text{Exposure Factor (EF)}SLE=Asset Value×Exposure Factor (EF)
   • Exposure Factor (EF): The percentage of loss to the asset if an incident occurs. Ranges from 0 to 1.
   • Example: If an asset is valued at $100,000 and the EF is 0.25 (25%), then SLE = $100,000 × 0.25 = $25,000.
2. Annual Loss Expectancy (ALE)
   • Definition: The total expected loss for an asset over a year.
   • Formula: ALE=SLE×ARO\text{ALE} = \text{SLE} \times \text{ARO}ALE=SLE×ARO
   • Annualized Rate of Occurrence (ARO): The frequency with which a risk is expected to occur annually.
   • Example: If SLE is $25,000 and ARO is 2 (occurs twice a year), then ALE = $25,000 × 2 = $50,000.
3. Risk Management Strategies
   • Accept: Acknowledge the risk and decide not to take any action.
   • Mitigate: Implement controls to reduce the likelihood or impact of the risk. Calculate the cost of these controls and compare to the risk reduction.
   • Assign (Transfer): Transfer the risk to another party, such as through insurance.
   • Avoid: Alter or cease activities to eliminate the risk.
4. Residual Risk
   • Definition: The risk remaining after implementing controls.
   • Formula: Residual Risk=Total Risk−Controls Gap\text{Residual Risk} = \text{Total Risk} – \text{Controls Gap}Residual Risk=Total Risk−Controls Gap
   • Controls Gap: The amount of risk reduced by safeguards.
   • Legal Note: Residual risk may not be counted when determining liability if the cost of additional countermeasures exceeds the estimated loss (C > L).
5. Loss Calculation
   • Definition: The financial impact of a loss event.
   • Formula: Loss=Probability×Cost\text{Loss} = \text{Probability} \times \text{Cost}Loss=Probability×Cost
6. Recovery Metrics
   • Recovery Time Objective (RTO): How quickly information must be available after downtime.
   • Recovery Point Objective (RPO): The point in time to which data must be recovered. Defines how much data you are willing to lose.
   • Maximum Tolerable Downtime (MTD): The maximum time a business can be down and still remain viable.
     • Critical: MTD from minutes to hours.
     • Urgent: MTD up to 24 hours.
     • Important: MTD up to 72 hours.
     • Normal: MTD up to 7 days.
     • Non-essential: MTD up to 30 days.

Example Calculation

1. Determine SLE:
   • Asset Value: $200,000
   • Exposure Factor: 0.30 (30%)
   • SLE = $200,000 × 0.30 = $60,000
2. Determine ALE:
   • SLE: $60,000
   • ARO: 1 (occurs once a year)
   • ALE = $60,000 × 1 = $60,000
3. Residual Risk:
   • Total Risk: $60,000
   • Controls Gap (risk reduction): $10,000
   • Residual Risk = $60,000 – $10,000 = $50,000
4. Decide Risk Management Strategy:
   • If the cost of further controls to reduce the residual risk is greater than $50,000, consider accepting or transferring the risk.

Key Notes

• Approval and Review: Ensure all risk management plans are approved and regularly reviewed.
• ARO Example: If a risk event is expected to occur once every 100 years, ARO would be 0.01.

Understanding these concepts and calculations is crucial for effectively managing and mitigating risks in a quantitative manner.