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Evaluate risk and use financial tools to invest in security solutions. You will work through four mini-scenarios involving financial investing and risk identification, including calculations of ROI, ROSI, ALE, and mitigation investment decisions, applying relevant formulas and concepts of risk exposure, vulnerability, and threat.

Sample Paper For Above instruction

Scenario 1: Return on Investment (ROI)

ROI is a key metric used to determine the efficiency and profitability of investment projects. The formula for ROI is:

ROI = (Gain from Investment - Cost of Investment) / Cost of Investment

In this case, the new memory chip project costs $2 million and is expected to generate $6 million over three years. Thus, the ROI calculation is:

ROI = ($6,000,000 - $2,000,000) / $2,000,000 = $4,000,000 / $2,000,000 = 2 or 200%

This indicates that the project is expected to generate a return of 200%, meaning it will triple the initial investment over three years. A high ROI signifies a potentially lucrative investment, but other factors should also be considered, such as risk and strategic fit.

Scenario 2: Return on Security Investment (ROSI)

ROSI assesses the benefits of security investments based on risk mitigation. The formula is:

ROSI = (Risk Exposure without mitigation - Risk Exposure with mitigation) / Cost of security solution

Data provided indicates:

  • Damage from BAD-VIRUS in 2022 = $68,000
  • Cost of anti-virus solution = $32,000
  • Effectiveness of anti-virus = 75%

Risk exposure prior to mitigation is $68,000, assuming no other security controls. The risk mitigated is 75% of this damage, so:

Risk mitigated = 68,000 x 0.75 = $51,000

Remaining risk after mitigation = $68,000 - $51,000 = $17,000

Risk exposure with mitigation = $17,000

Both the initial risk and residual risk are considered. The reduction in risk equals $51,000. Therefore, ROSI is calculated as:

ROSI = ($51,000) / $32,000 ≈ 1.59 or 159%

This high ROSI indicates that the anti-virus solution provides substantial risk mitigation value compared to its cost, making it a worthwhile investment in cybersecurity.

Scenario 3: Quantifying Risk Exposure

The Annual Loss Expectancy (ALE) is calculated as:

ALE = SLE x ARO

Given:

  • ARO = 0.5 (once every 2 years)
  • SLE = $12,500

Calculating ALE:

ALE = $12,500 x 0.5 = $6,250

This indicates that, on average, the organization expects to lose $6,250 annually due to this risk, which helps in prioritizing security investments and controls.

Scenario 4: Complex Problem on Risk and Mitigation Investment

The asset value is $48,000, and the SLE is $10,000, calculated as:

SLE = Actual Asset Value x Exposure Factor (EF)

Thus, EF = SLE / Actual Asset Value = $10,000 / $48,000 ≈ 0.2083 or 20.83%

The ARO is 0.5, meaning the threat occurs once every two years. The ALE before mitigation is:

ALE1 = SLE x ARO = $10,000 x 0.5 = $5,000

Assuming mitigation reduces the ARO to 0.1 (once every 10 years), the ALE after mitigation is:

ALE2 = SLE x ARO = $10,000 x 0.1 = $1,000

The cost of implementing and maintaining backups is $500. The mitigation investment (M1) is calculated as:

M1 = ALE1 - ALE2 - Cost of mitigation = $5,000 - $1,000 - $500 = $3,500

Given that the savings from mitigation ($4,000) exceed the cost ($500), the organization should invest up to $3,500 in backup solutions, as this amount maximizes risk reduction relative to cost and provides a sound financial decision for security investments.

Conclusion

Applying financial formulas like ROI, ROSI, and ALE allows organizations to make evidence-based decisions concerning their cybersecurity investments. Understanding risk exposure helps prioritize security controls, balancing costs against potential losses. Effective risk management thus involves quantifying risks, evaluating mitigation strategies financially, and aligning security investments with organizational objectives.

References

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