The Importance of Business Risk to the Enterprise

Business risk is foundational to business risk intelligence, but it’s also commonly misunderstood because its scope extends far beyond what security practitioners typically deal with on a daily basis. Broadly speaking, asserts Josh Lefkowitz, business risk refers to the possibility of experiencing lower revenue or a profit loss due to some degree of uncertainty. Although there are many uncertainties inherent to running a business, most tend to fall under one or more of the following categories – financial risk, compliance risk, strategic risk, reputational risk and operational risk – which are also typically referred to as the five categories of business risk.

All forms of business risk can have financial ramifications, but financial risk relates solely to how a business handles money and financing. External factors, such as changes in interest or exchange rates, as well as company-related factors like debt-to-equity ratio, are common factors that contribute towards financial risk.

The penalties a business could face for any proven failure to comply with industry regulations and/or legislation can vary from minor fines through to serious legal action. Regardless of the industry in which a company operates, its location, size and the regulatory environment, threats that put compliance at risk may arise due to unforeseen circumstances such as data breaches, technical failures or sudden legislative changes.

For its part, strategic risk encompasses any potential loss that a business could incur if an aspect of its strategy fails or becomes less effective. This may occur due to increased competition, demand fluctuations, technological shortcomings or numerous other factors that hinder the efficacy of a given business’ strategy.

When it comes to reputational risk, the possibility of eroded trust and/or revenue losses resulting from events such as bad publicity, product recalls, lawsuits and security incidents is an ever-present risk for businesses across all sectors. Further, unexpected errors or damages caused by people, processes or external events can significantly disrupt a business’ core operations, typically causing significant revenue loss and reputational damage. Operational risks can take many forms, ranging from natural disasters and physical infrastructure damage through to fraud, cyber attacks and supply chain vulnerabilities.

Anticipation and preparation: keys to reducing uncertainty

In terms of effectively navigating the threat landscape, being able to distinguish between the five categories of business risk and structuring your risk management programme supported by business risk intelligence in a manner that addresses all of them is crucial. Business risk is fuelled by uncertainty, so while business risk intelligence cannot fully eliminate the various risks businesses face on a day-to-day basis, it can help organisations better anticipate and prepare for uncertain situations.

For instance, let’s suppose that an e-commerce retailer suffers considerable downtime as the result of a DDoS attack. In order to leverage business risk intelligence to prevent similar occurrences in the future, the retailer must first consider the impact of the attack across each category of business risk as follows:

Financial Risk: No

The DDoS attack had no effect on the business’ capital structure and thus didn’t impact its financial risk

Compliance Risk: Yes

With the European Union’s (EU) General Data Protection Regulation (GDPR) now in full effect, any organisation that transacts business in the EU must abide by its compliance requirements. Guaranteeing network availability is a crucial component of the GDPR. As such, downtime as the result of a DDoS attack may lead to financial penalties, thus affecting a business’ bottom line

Strategic Risk: Yes

The DDoS attack did influence strategic risk because the retailer’s strategy is largely dictated by its e-commerce business model. Customers were unable to browse, shop or make purchases on the retailer’s website during the DDoS attack episode, thereby resulting in lost revenue. Since managing strategic risk should be seen as a long-term endeavour, this attack should indicate the need to invest in DDoS protection.

Reputational Risk: Yes

The DDoS attack inconvenienced and upset customers who sought to access the retailer’s website during the outage. Many such customers expressed their frustration on social media, attracting significant negative attention to the company, in turn eroding consumer trust and, ultimately, exacerbating revenue losses.

Operational Risk: Yes

The retailer was unprepared for the attack and didn’t have adequate DDoS protection measures in place to protect its website from outages and resulting consequences. As such, the attack did contribute to the retailer’s operational risk.

Evaluating each risk category

By evaluating each category of business risk in this context, the e-commerce retailer can make informed decisions pertaining to the direction and priorities of a business risk intelligence operation. In this case, the retailer’s business risk intelligence operation should focus primarily on addressing the potential compliance, strategic, reputational and operational risks that could be posed by similar attacks in the future.

Josh Lefkowitz

Josh Lefkowitz

This type of exercise can help to identify additional resources, stakeholders or business functions that may be needed in the future to assess and manage risk. For instance, if the retailer learns that another disruptive attack is imminent, a response based on business risk intelligence that encompasses business as well as cyber risk would mandate that network security teams as well as business leaders (such as those tasked with looking after communications, legal, strategy and finance) be ready to respond.

This example reinforces a hallmark of business risk intelligence. Given that individual threats can affect all business functions across an enterprise, a business risk intelligence programme must understand and account for the different categories of risk.

While even the most sophisticated of business risk intelligence programmes cannot fully eradicate business risk, such programmes can reduce the uncertainty that fuels it through better anticipation and preparation.

Josh Lefkowitz is CEO at Flashpoint

About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

Related Posts