How to Quantify Risk
There has been much criticism of risk assessment and analysis over the past few years that amount to much ado about nothing. Why is it much ado about nothing? Well, because, quite simply, people oftentimes don’t understand what it is they’re criticizing, especially in the case of quantified risk analysis methods.
Before we get into risk measurement, let’s first make one thing clear: risk analysis is nothing more than a decision-analysis (or decision-support) tool. It helps provide reasonably accurate data points that decision-makers can use when make decisions. It is not a panacea for all things risk or infosec, nor is it some sort of special magic-sauce voodoo with no grounding in reality (at least not in terms of well-considered quant methods). Clear? Crystal, I’m sure.
When performing a risk analysis, we need to start with the basics. Here at Gemini we subscribe to the Factor Analysis of Information Risk (FAIR) methodology for performing quantified risk analysis. FAIR defines risk as “the probable frequency and probable magnitude of future loss.” What this means in real terms is that FAIR reduces “risk” into two main components: Loss Event Frequency and Loss Magnitude. Both are estimates that are created using Douglas Hubbard’s calibration technique, as advocated in his book How to Measure Anything.

