6 Steps to Optimize Your Organization’s Risk Matrix

You know the feeling: a constant barrage of new regulations, each with its own set of requirements and potential penalties. How does your organization effectively manage this complex landscape? The answer lies within a robust, quantifiable risk matrix to consistently assess incidents throughout your organization.
This post will walk you through the steps to create a tailored and scalable risk matrix that helps your organization proactively identify, assess, and mitigate risks related to evolving regulations, focusing on measurable metrics.

Step 1: Identify Relevant Regulations and Standards

First, you need a comprehensive list of applicable regulations and standards. This isn’t just about the “big names” like the SEC, DORA, and NIS2. Consider:

• Industry-specific regulations: Are you in healthcare (EMTALA), finance (CSIN), or another regulated sector?
• Geographic and Business scope: Where do you operate, and at what scale? EU regulations have extraterritorial reach, and state-level laws are increasingly common. SEC applies to publicly traded companies, whereas critical systems need to follow NIS2.
• Contractual obligations: Review your third-party vendor contracts for specific security or compliance requirements and notification thresholds.
  Internal policies and procedures: Your own organization’s standards for risk management and escalation are a crucial part of the assessment. 

Step 2: Define Risk Categories and Subcategories

Next, break down the regulatory requirements into specific risk categories. Common categories include:

• Cybersecurity: Data breaches, ransomware attacks, system vulnerabilities.
• Operational Resilience: Business continuity, disaster recovery, supply chain management.
• Regulatory Reporting: Timely and accurate reporting to authorities.
• Third Party Risk: Risks associated with vendors and suppliers.

For each category, define relevant subcategories. For example, under “Cybersecurity,” you might have:

• Phishing attacks
• Malware infections
• Insider threats
• Cloud security vulnerabilities

Step 3: Establish Quantifiable Risk Assessment Criteria

You need to define clear, measurable criteria for likelihood and impact.

• Financial Impact:
  • Determine the specific financial thresholds that would qualify an incident to be at a Low, Moderate, Notable, High, or Critical severity level. 
  • Consider annual revenue, potential fines, legal or consultant costs, remediation costs, and lost revenue.
• Impact on Affected Parties 
  • Define the numeric thresholds for the number of affected customers, clients, or other parties associated with the incident that would quantify an incident as Low, Moderate, Notable, High, or Critical.
  • Consider the potential churn, legal ramifications, and/or class action lawsuits.
  • Will this cause downstream impacts on third parties or vendors?
• Operational Disruption:
  • Quantify downtime in hours or days. For example, how long does a critical application need to be down to cause a major impact to daily operations?
  • Consider the impact on critical processes and SLAs.
  • For financial institutions, consider the number of failed transactions or the volume of lost trading activity.
  • For manufacturers, consider inability to source raw materials or ingredients, deliver products, or operate machinery. 
• Reputation:
  • Will, or does your brand experience damage related to this incident?
  • Consider the reputational repercussions of negative news coverage, customer/client complaints, or social media attention.
• Likelihood:
  • Analyze historical incident data.
  • Use vulnerability assessments to quantify system weaknesses.
  • Monitor threat intelligence feeds.
  • Use statistical modeling.
  • Convert qualitative ratings to numerical probability.
• Complexity:
  • As you have considered all of the criteria that make up each risk rating level, consider if there are compounding factors that should be considered. 
  • For example, if more than one moderate criterion is present, does that elevate the overall risk to a high risk because of the combination of moderate criteria involved?

Step 4: Create the Risk Matrix

Construct a matrix including the risk ratings relevant to your organization (e.g., Low, Moderate, Notable, High, Critical). For each risk rating utilized, define the specific criteria that need to happen for the incident to be considered at that risk level.

Consider compounding factors as well. Using your notes from step one above, include details associated with each risk rating of who needs to be notified in the event an incident meets that risk rating level. Are there internal committees or teams that need to be notified? Perhaps additional counsel needs to be involved once an incident reaches a higher threshold.

Step 5: Assess and Prioritize Risks

Now, apply your quantifiable risk assessment criteria to each identified risk and assign a risk rating. This involves:

• Gathering data: Conduct interviews, review documentation, perform vulnerability assessments, and collect financial data.
• Analyzing data: Determine the precise likelihood and measurable impact of each risk.

• Prioritizing risks: Focus on high-risk areas first, using the defined numerical values to inform decision making.

Step 6: Ongoing Monitoring and Review

The risk matrix is not a static document. Regularly review and update it to reflect:

• Changes in regulations
• Emerging threats
• New business activities
• Lessons learned from incidents

Tools and Technology

The proper technology can assist in simplifying the management of incidents as they occur. Radar^® Compliance, for example, is a configurable rules and assessment engine that lets you define your own notification triggers and obligations, including internal stakeholders, regulators, and third-party obligations. The result is a consistent, defensible, and collaborative incident management system organization-wide. 

Implementation Tips

• Document Your Assumptions: Clearly document the rationale behind your quantified risk assessment criteria.
• Regularly Review and Update: Revise your thresholds as your organization grows and the threat landscape evolves.
• Involve Stakeholders: Collaborate with business units, IT, and legal to develop realistic and relevant criteria.
• Use Data-Driven Decision Making: Base your risk assessments on objective, numerical data and analysis.

By incorporating quantifiable data into your risk assessment criteria, you can create a more accurate, defensible, and effective risk matrix that enables your organization to make informed decisions and prioritize resources. Remember, this is an ongoing process that requires continuous monitoring and adaptation.