risk-assessment-methodology

name	risk-assessment-methodology
description	Systematic risk identification, analysis, evaluation, and treatment aligned with ISO 27005, NIST RMF, and Hack23 ISMS risk register
license	Apache-2.0

Risk Assessment Methodology Skill

Purpose

This skill provides quantitative risk assessment methodology aligned with Hack23 AB's enterprise risk management framework. It enables security professionals and business leaders to systematically identify, analyze, evaluate, and treat risks using defensible statistical methods that demonstrate cybersecurity consulting expertise through measurable, data-driven risk quantification.

When to Use This Skill

Apply this skill when:

• ✅ Conducting quarterly risk assessments
• ✅ Evaluating risks for new products or services
• ✅ Calculating Annual Loss Expectancy (ALE) for control investments
• ✅ Prioritizing risk treatment based on quantitative impact
• ✅ Documenting risk acceptance decisions
• ✅ Creating risk registers for compliance frameworks
• ✅ Performing threat modeling with financial impact
• ✅ Supporting business case for security controls
• ✅ Responding to client risk assessment inquiries

Do NOT use for:

• ❌ Real-time incident response (use incident-response skill)
• ❌ Vulnerability scoring (use vulnerability-management skill)
• ❌ Code security reviews (use secure-code-review skill)

Risk Assessment Process Flow

flowchart TD
    START["🎯 Risk Assessment<br/>Initiation"] --> IDENTIFY["📋 Risk Identification<br/>Assets • Threats • Vulnerabilities"]
    
    IDENTIFY --> ANALYZE["🔍 Risk Analysis"]
    
    ANALYZE --> LIKELIHOOD["📊 Likelihood Assessment<br/>Historical + Industry + Expert"]
    ANALYZE --> IMPACT["💰 Impact Assessment<br/>Financial • Operational • Reputational"]
    
    LIKELIHOOD --> CALC["🔢 Risk Score Calculation<br/>Probability × Impact × 100"]
    IMPACT --> CALC
    
    CALC --> CATEGORY{Risk Level?}
    
    CATEGORY -->|400-600| CRITICAL["🔴 Critical Risk<br/>Immediate action required"]
    CATEGORY -->|200-399| HIGH["🟠 High Risk<br/>Priority mitigation needed"]
    CATEGORY -->|100-199| MEDIUM["🟡 Medium Risk<br/>Planned controls required"]
    CATEGORY -->|50-99| LOW["🟢 Low Risk<br/>Monitor and accept"]
    CATEGORY -->|1-49| MINIMAL["⚪ Minimal Risk<br/>Accept risk"]
    
    CRITICAL --> TREAT{Treatment<br/>Decision}
    HIGH --> TREAT
    MEDIUM --> TREAT
    LOW --> ACCEPT["✅ Accept Risk<br/>Document in Risk Register"]
    MINIMAL --> ACCEPT
    
    TREAT -->|Reduce| MITIGATE["🛡️ Implement Controls<br/>Reduce likelihood or impact"]
    TREAT -->|Transfer| TRANSFER["🤝 Insurance/Outsource<br/>Share financial burden"]
    TREAT -->|Avoid| AVOID["🚫 Eliminate Activity<br/>Remove risk source"]
    TREAT -->|Accept| ACCEPT_HIGH["📋 Document Acceptance<br/>CEO approval required"]
    
    MITIGATE --> RESIDUAL["📉 Residual Risk<br/>Reassessment"]
    TRANSFER --> RESIDUAL
    AVOID --> RESIDUAL
    ACCEPT_HIGH --> RESIDUAL
    ACCEPT --> REGISTER["📊 Risk Register<br/>Tracking & Monitoring"]
    
    RESIDUAL --> REGISTER
    
    REGISTER --> REVIEW["🔄 Periodic Review<br/>Quarterly/Annual"]
    REVIEW --> START
    
    style START fill:#1565C0,stroke:#0D47A1,stroke-width:3px,color:#fff
    style CRITICAL fill:#D32F2F,stroke:#B71C1C,stroke-width:3px,color:#fff
    style HIGH fill:#FF9800,stroke:#F57C00,stroke-width:2px
    style MEDIUM fill:#FFC107,stroke:#FFA000,stroke-width:2px
    style LOW fill:#4CAF50,stroke:#2E7D32,stroke-width:2px,color:#fff
    style MINIMAL fill:#9E9E9E,stroke:#616161,stroke-width:1px
    style REGISTER fill:#9C27B0,stroke:#7B1FA2,stroke-width:2px,color:#fff

Likelihood Assessment Framework

Evaluate probability using descriptive categories with quantitative ranges:

Likelihood	Badge	Probability	Annual Frequency	ARO	Definition	Examples
Almost Certain		80-99%	292-361 events/year	0.8-0.99	Expected to occur in most circumstances	Daily operational issues, routine maintenance
Likely		60-79%	219-291 events/year	0.6-0.79	Will probably occur	Weekly service disruptions, staff availability issues
Possible		40-59%	146-218 events/year	0.4-0.59	Might occur at some time	Monthly supplier issues, seasonal variations
Unlikely		20-39%	73-145 events/year	0.2-0.39	Could occur but not expected	Quarterly security incidents, annual contract changes
Rare		5-19%	18-72 events/year	0.05-0.19	May occur only in exceptional circumstances	Multi-year events, rare external factors
Exceptional		<5%	<18 events/year	<0.05	Rare, once-in-decade event	Black swan events, extreme scenarios

Likelihood Assessment Methods

Quantitative Data (Preferred):

# Historical frequency analysis
def calculate_aro(events_last_3_years, trend_factor=1.0):
    """Calculate Annual Rate of Occurrence from historical data"""
    base_aro = sum(events_last_3_years) / 3
    adjusted_aro = base_aro * trend_factor
    return min(adjusted_aro, 0.99)  # Cap at 99%

# Example: 8 incidents in 3 years, increasing trend
aro = calculate_aro([2, 3, 3], trend_factor=1.2)  # = 0.32 (Unlikely)

Qualitative Assessment (When Data Limited):

• Industry benchmarks (DBIR, ENISA Threat Landscape)
• Expert judgment from security team
• Peer comparison with similar organizations
• Threat intelligence feeds

Impact Assessment Framework

Evaluate business impact across multiple dimensions:

Impact	Badge	Financial	Operational	Reputational	Regulatory
Catastrophic		>€50K	Complete shutdown	International media	Criminal charges
Critical		€10K-50K	Major disruption	National media	Significant fines
High		€1K-10K	Significant degradation	Industry attention	Moderate penalties
Moderate		€500-1K	Partial service impact	Regional visibility	Minor warnings
Low		€100-500	Minor inconvenience	Limited local impact	Verbal guidance
Minimal		<€100	No significant impact	No external visibility	No implications

Impact Score Mapping

• Catastrophic = 6
• Critical = 5
• High = 4
• Moderate = 3
• Low = 2
• Minimal = 1

Risk Score Calculation

Formula: Risk Score = Likelihood (midpoint %) × Impact Score (1-6) × 100

Calculation Examples

Example 1: Data Breach Risk

• Likelihood: Unlikely (30% midpoint)
• Impact: Critical (5)
• Risk Score: 0.30 × 5 × 100 = 150 → 🟡 Medium Risk

Example 2: DDoS Attack Risk

• Likelihood: Possible (50% midpoint)
• Impact: High (4)
• Risk Score: 0.50 × 4 × 100 = 200 → 🟠 High Risk

Example 3: Ransomware Risk

• Likelihood: Likely (70% midpoint)
• Impact: Catastrophic (6)
• Risk Score: 0.70 × 6 × 100 = 420 → 🔴 Critical Risk

Risk Level Categories

Risk Level	Score Range	Badge	Management Response	Review Frequency
Critical	400-600		CEO immediate action, daily monitoring	Daily
High	200-399		Weekly executive review	Weekly
Medium	100-199		Monthly assessment	Monthly
Low	50-99		Quarterly monitoring	Quarterly
Minimal	1-49		Acceptance, periodic review	Annual

Financial Risk Analysis

Single Loss Expectancy (SLE)

Formula: SLE = Asset Value × Exposure Factor

Asset Value Categories:

Category	Value Range	Examples
Mission Critical	€100K-500K	Core infrastructure, customer data
High Value	€50K-100K	Business applications, intellectual property
Standard	€10K-50K	Supporting systems, processes
Low Value	€1K-10K	Documentation, utilities

Exposure Factor Guidelines:

Exposure	Factor	Description
Complete Loss	0.8-1.0	Total destruction (ransomware, theft)
Major Loss	0.5-0.8	Significant damage (data corruption)
Moderate Loss	0.2-0.5	Partial damage (service disruption)
Minor Loss	0.1-0.2	Limited impact (performance degradation)

Annual Loss Expectancy (ALE)

Formula: ALE = SLE × ARO

Example Calculation:

# Ransomware attack on CIA Platform
asset_value = 200000  # €200K (Mission Critical)
exposure_factor = 0.9  # 90% loss (Complete Loss)
aro = 0.7  # 70% (Likely based on industry data)

sle = asset_value * exposure_factor  # €180K
ale = sle * aro  # €126K annually

Value at Risk (VaR) Framework

Formula: VaR = Impact (€) × Probability × Confidence Factor × Time Horizon

VaR Risk Categories:

Category	VaR Range (€)	Management Action
Critical	>€200K	Board escalation, immediate mitigation
High	€50K-200K	Executive committee, quarterly review
Medium	€10K-50K	Risk committee, semi-annual review
Low	€1K-10K	Management monitoring, annual review
Minimal	<€1K	Acceptance, periodic review

Risk Treatment Decision Matrix

graph TB
    RISK["📊 Risk Identified<br/>with Score"] --> EVAL{Risk Level?}
    
    EVAL -->|Critical/High<br/>400-600, 200-399| HIGH_TREAT["🎯 Treatment Required"]
    EVAL -->|Medium<br/>100-199| MED_TREAT["⚖️ Treatment Evaluation"]
    EVAL -->|Low/Minimal<br/>1-99| LOW_TREAT["✅ Consider Acceptance"]
    
    HIGH_TREAT --> OPTIONS1[Treatment Options]
    MED_TREAT --> OPTIONS2[Treatment Options]
    LOW_TREAT --> ACCEPT_DIRECT[Accept Risk<br/>Document in Risk Register]
    
    OPTIONS1 --> MITIGATE1["🛡️ Mitigate<br/>Implement controls"]
    OPTIONS1 --> TRANSFER1["🤝 Transfer<br/>Insurance/Outsource"]
    OPTIONS1 --> AVOID1["🚫 Avoid<br/>Eliminate activity"]
    
    OPTIONS2 --> MITIGATE2["🛡️ Mitigate<br/>Cost-benefit analysis"]
    OPTIONS2 --> ACCEPT2["📋 Accept<br/>Document rationale"]
    
    MITIGATE1 --> COST_BENEFIT{Control Cost<br/>vs ALE?}
    TRANSFER1 --> COST_BENEFIT
    MITIGATE2 --> COST_BENEFIT
    
    COST_BENEFIT -->|Control < ALE| IMPLEMENT["✅ Implement Control"]
    COST_BENEFIT -->|Control > ALE| ACCEPT_COST["📋 Accept Risk<br/>Document decision"]
    
    AVOID1 --> BUSINESS{Business<br/>Impact?}
    BUSINESS -->|Acceptable| ELIMINATE["🚫 Eliminate Risk"]
    BUSINESS -->|Unacceptable| FIND_ALT["🔄 Find Alternative"]
    
    IMPLEMENT --> RESIDUAL["📉 Residual Risk<br/>Assessment"]
    ACCEPT2 --> REGISTER["📊 Risk Register"]
    ACCEPT_COST --> REGISTER
    ACCEPT_DIRECT --> REGISTER
    ELIMINATE --> REGISTER
    
    RESIDUAL --> REEVAL{Still<br/>High/Critical?}
    REEVAL -->|Yes| ADDITIONAL[Additional Controls<br/>Required]
    REEVAL -->|No| REGISTER
    
    ADDITIONAL --> COST_BENEFIT
    
    style RISK fill:#1565C0,stroke:#0D47A1,stroke-width:3px,color:#fff
    style HIGH_TREAT fill:#D32F2F,stroke:#B71C1C,stroke-width:3px,color:#fff
    style MED_TREAT fill:#FF9800,stroke:#F57C00,stroke-width:2px
    style IMPLEMENT fill:#4CAF50,stroke:#2E7D32,stroke-width:2px,color:#fff
    style REGISTER fill:#9C27B0,stroke:#7B1FA2,stroke-width:2px,color:#fff

Cost-Benefit Analysis Formula

Control Value = ALE (Before) - ALE (After) - Control Cost

def control_roi(ale_before, ale_after, control_cost_annual):
    """Calculate return on investment for security control"""
    annual_benefit = ale_before - ale_after
    net_benefit = annual_benefit - control_cost_annual
    roi_percentage = (net_benefit / control_cost_annual) * 100
    return {
        'annual_benefit': annual_benefit,
        'net_benefit': net_benefit,
        'roi_percentage': roi_percentage,
        'recommendation': 'Implement' if net_benefit > 0 else 'Reject'
    }

# Example: MFA implementation
result = control_roi(
    ale_before=126000,  # €126K ransomware risk
    ale_after=12600,    # 90% reduction
    control_cost_annual=5000  # €5K/year for MFA
)
# Result: €108.4K net benefit, 2068% ROI → Implement

Risk Assessment Templates

Template 1: Comprehensive Risk Assessment

# Risk Assessment: [Risk Name]

**Risk ID:** RSK-2025-XXX
**Assessment Date:** 2025-01-XX
**Assessor:** [Name/Role]
**Status:** Open/Mitigated/Accepted/Closed

## Risk Description
Brief description of the risk scenario.

## Asset Information
- **Primary Asset:** [Asset name]
- **Asset Value:** €X
- **Classification:** [Confidentiality/Integrity/Availability levels]

## Threat & Vulnerability
- **Threat Actor:** [Who/what causes the risk]
- **Threat Motivation:** [Why would they exploit this]
- **Vulnerability:** [What weakness enables exploitation]
- **Attack Vector:** [How the attack occurs]

## Likelihood Assessment
- **Category:** [Exceptional/Rare/Unlikely/Possible/Likely/Almost Certain]
- **Probability:** X%
- **ARO:** X.XX
- **Evidence:** [Historical data, industry benchmarks, expert judgment]

## Impact Assessment
- **Financial:** €X (Category: [Minimal/Low/Moderate/High/Critical/Catastrophic])
- **Operational:** [Description]
- **Reputational:** [Description]
- **Regulatory:** [Description]
- **Impact Score:** X (1-6)

## Risk Calculation
- **Risk Score:** [Probability × Impact × 100] = XXX
  🔴/🟠/🟡/🟢/⚪ [Critical/High/Medium/Low/Minimal]


  €X
  X.X
  €X
  €X


 [Existing control 1]
 [Existing control 2]


  Mitigate/Transfer/Avoid/Accept
  [List controls]
  €X annually
  XXX → [Risk Level]
  Net benefit €X, ROI X%
  Implement/Reject


  [Name/Role]
  2025-XX-XX
  2025-XX-XX

Template 2: Quick Risk Matrix

Risk ID	Description	Likelihood	Impact	Score	Level	Treatment	Owner
RSK-001	Data breach	Unlikely (30%)	Critical (5)	150	🟡 Medium	MFA implementation	CTO
RSK-002	DDoS attack	Possible (50%)	High (4)	200	🟠 High	CDN + WAF	CTO
RSK-003	Ransomware	Likely (70%)	Catastrophic (6)	420	🔴 Critical	Backup + EDR	CEO

Integration with Classification Framework

Align risk assessments with Classification Framework:

CIA Triad Mapping

Confidentiality Impact:

• Very High (C5) → Catastrophic financial impact
• High (C4) → Critical financial impact
• Moderate (C3) → High financial impact
• Low (C2) → Moderate financial impact
• Minimal (C1) → Low financial impact

Integrity Impact:

• Critical (I5) → Catastrophic operational impact
• High (I4) → Critical operational impact
• Moderate (I3) → High operational impact
• Low (I2) → Moderate operational impact
• Minimal (I1) → Low operational impact

Availability Impact:

• Mission Critical (A5) → Catastrophic business impact
• High (A4) → Critical business impact
• Moderate (A3) → High business impact
• Low (A2) → Moderate business impact
• Minimal (A1) → Low business impact

Practical Examples

Example 1: CIA Platform Ransomware Risk

Risk Assessment:

risk_id: "RSK-2025-001"
risk_name: "Ransomware attack on CIA Platform"
asset: "CIA Platform (Production)"
asset_value: 200000  # €200K

likelihood:
  category: "Likely"
  probability: 0.70
  aro: 0.70
  evidence: "Industry data (DBIR 2024), phishing susceptibility"

impact:
  financial: 180000  # €180K recovery costs
  operational: "72-hour downtime"
  reputational: "National media coverage"
  regulatory: "GDPR breach notification required"
  category: "Catastrophic"
  score: 6

risk_score: 420  # 0.70 × 6 × 100
risk_level: "Critical"

financial_analysis:
  sle: 180000  # €200K × 0.9
  ale: 126000  # €180K × 0.70

current_controls:
  - "Firewall"
  - "Antivirus"
  - "User awareness training"

proposed_treatment:
  strategy: 
  
     
     
     
     
     
     
     
   
  

     
     
     
   


   
   
   

Example 2: Black Trigram No Authentication Risk

Risk Assessment:

risk_id: "RSK-2025-015"
risk_name: "No authentication system risk"
asset: "Black Trigram Gaming Platform"
asset_value: 10000  # €10K

likelihood:
  category: "Rare"
  probability: 0.12
  aro: 0.12
  evidence: "No user accounts, public content only"

impact:
  financial: 500  # €500 reputation recovery
  operational: "Minimal—frontend only"
  reputational: "Limited local impact"
  regulatory: "None—no personal data"
  category: "Low"
  score: 2

risk_score: 24  # 0.12 × 2 × 100
risk_level: "Minimal"

financial_analysis:
  sle: 5000  # €10K × 0.5 (moderate exposure)
  ale: 600  # €5K × 0.12

treatment:
  strategy: "Accept"
  rationale: "Low confidentiality classification. All content is public educational material. No user-specific operations."
  controls_considered:
    - "Authentication system: €8K/year"
     
   
  

   
   
   
  
     
     
     

Compliance Mapping

Risk Assessment Component	ISO 27005	NIST RMF	CIS Controls v8
Risk identification	Clause 8.2	Categorize	4.1 Asset Management
Likelihood assessment	Annex C	Assess	4.1 Risk Assessment
Impact assessment	Annex C	Assess	4.2 Risk Analysis
Risk calculation	Clause 8.3	Assess	4.2 Risk Analysis
Risk treatment	Clause 8.4	Select + Implement	4.3 Risk Response
Risk acceptance	Clause 8.4.4	Authorize	4.4 Risk Approval
Monitoring & review	Clause 9	Monitor	4.5 Risk Monitoring

Standards & Policy References

Core Hack23 ISMS Policies:

• Risk Assessment Methodology - Quantitative framework
• Risk Register - Live risk tracking
• Classification Framework - Impact assessment
• Asset Register - Asset valuation
• Threat Modeling - Threat identification

All Hack23 ISMS Policies: https://github.com/Hack23/ISMS-PUBLIC