Enterprise IT Governance with COBIT – Part V RiskIT Framework Dr. Yue “Jeff” Zhang 张跃博士 California State University, Northridge

Outline of the Course IT governance overview COBIT 4.1 overview COBIT 4.1 framework Val IT RiskIT COBIT Practitioners Guide Information Security Guide to the Board COBIT 5

What is risk management? “Is the identification, assessment, and prioritization of risks (as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.” — Wikipedia Action: Ask what is risk management? Review the definition of risk management and come to a common understanding. Discuss the typical strategies to manage risk.

Who is a risk manager? We all manage risk Life and business are complex; but - Risk management should be simple Use risk management approaches to - Make business simpler Use the right tool for the job

Risk management tenet Managing risk to business performance Against specific objectives ENABLES businesses to achieve the obj Changing situations may bring gain or loss Risk management ENABLES businesses to stay on right track, to seize opportunities Risk management should improve agility, making it safer to move in a changing environment “Human immunity” analogy

Why Care About IT-related Risk? Enterprises are dependent on automation and integration. Need to cross IT silos of risk management. Important to integrate with existing levels of risk management practices.

Manage and Capitalize on Business Risk Enterprises achieve return by taking risks. Some try to eliminate the very risks that drive profit. Guidance was needed on how to manage risk effectively.

Two views of business-related IT risk IT is a tool that can be used to enable the business To seek better outcomes by reducing risk to the business Through improving consistency, complying w controls, and reducing errors IT is a tool that can break, or used inefficiently, or cause harm if misused/exploited maliciously

IT Risk in the Risk Hierarchy

Risk IT: A Balance Is Essential Risk and value are two sides of the same coin. Risk is inherent to all enterprises. BUT Enterprises need to ensure that opportunities for value creation are not missed by trying to eliminate all risk. COBIT sets good practices for the means of risk management by providing a set of controls to mitigate IT risk Risk IT sets good practices for the ends by providing a framework for enterprises to identify, govern and manage IT risk.

Purpose of Risk IT Framework The Risk IT framework explains IT risk and enables users to: Integrate the management of IT risk into the overall ERM, thus allowing the enterprise to make risk-return-aware decisions Make well-informed decisions about the extent of the risk, and the risk appetite and the risk tolerance of the enterprise Understand how to respond to the risk In brief, this framework allows the enterprise to make appropriate risk-aware decisions.

Benefits/Outcomes of Risk IT The benefits of using Risk IT include: A common language to help communication amongst business IT, risk and audit management End-to-end guidance on how to manage IT-related risks A complete risk profile to better understand risk, so as to better utilize enterprise resources A better understanding of the roles and responsibilities with regard to IT risk management Alignment with ERM A better view of IT-related risk and its financial implications Fewer operational surprises and failures Increased information quality Greater stakeholder confidence and reduced regulatory concerns Innovative applications supporting new business initiatives

What Risk IT Offers Provides guidance to help executives and management ask the key questions; make better, more informed risk-adjusted decisions and guide their enterprises so risk is managed effectively Helps save time, cost and effort with tools to address business risks Integrates the management of IT-related business risks into overall enterprise risk management Helps leadership understand the enterprise’s risk appetite and risk tolerance Provides practical guidance driven by the needs of enterprise leadership around the world

Risk IT: Extends Val IT and COBIT Risk IT complements and extends COBIT and Val IT to make a more complete IT governance guidance resource.

Covers IT-related Risk Management Risk IT is not limited to information security. It covers all IT-related risks, including: Late project delivery Not achieving enough value from IT Compliance Misalignment Obsolete or inflexible IT architecture IT service delivery problems

Risk IT is unique Provides a balanced view of an enterprise’s IT-related business risks: Focus on intersection of business and IT Unifies silos of IT-related business risk, including value, change, availability, security, project, and recovery Links with enterprise-wide risk management frameworks (COSO ERM, ISO 31000, etc) Enables a business activity and process view of IT-related business risk

Key values to YOU Enterprises can use the framework and guide Easier to assess, align, and improve their risk management activities Credibility to obtain support for investment in such activities Benchmark against agreed criteria in maturity and capability Build a community of support Operational guidelines

IT risk categories The business risk associated with the use, ownership, operation, involvement, influence and adoption of IT

Risk IT principles

Guiding Principles of Risk IT Always connect to enterprise objectives. Align the management of IT-related business risk with overall enterprise risk management. Balance the costs and benefits of managing risk. Promote fair and open communication of IT risk. Establish the right tone from the top while defining and enforcing personal accountability for operating within acceptable and well-defined tolerance levels. Understand that this is a continuous process and an important part of daily activities. {Excellent explanation PP 13~14}

Key Risk IT Content: The “What” Risk management essentials In Risk Governance: Risk appetite and tolerance, responsibilities and accountability for IT risk management, awareness and communication, and risk culture In Risk Evaluation: Describing business impact and risk scenarios In Risk Response: Key risk indicators (KRI) and risk response definition and prioritisation Process model sections that contain: Descriptions Input-output tables RACI (Responsible, Accountable, Consulted, Informed) table Goals and Metrics Table Maturity model is provided for each domain

Risk IT framework

Risk Governance Domain Risk Governance Essentials: Responsibility and accountability for risk Risk appetite and tolerance Awareness and communication Risk culture

Risk Evaluation Domain Risk Evaluation Essentials: Risk scenarios Business impact descriptions

Risk Response Domain Risk Response Essentials: Key risk indicators (KRIs) Risk response definition and prioritisation

Risk Governance - Risk Appetite and Tolerance Risk appetite—The broad-based amount of risk a company or other entity is willing to accept in pursuit of its mission (or vision) “方向” “取舍” Risk tolerance—The acceptable variation relative to the achievement of an objective (best measured in the same units as those used to measure the related objective) “限度” “门槛” http://www.rims.org/resources/ERM/Documents/RIMS_Exploring_Risk_Appetite_Risk_Tolerance_0412.pdf PP. 3~4 http://www.guycarp.com/portal/extranet/getDoc;JSESSIONIDGCPORTALWCPORTALAPP=2fDLRtXRwqG8cv7fHNMvLr4TCwvWL5YK1TTJqNtsQp4G5RwGndww!-1668854704?vid=1&docId=148121

Risk Appetite (P.17) Amount of risk an entity is prepared to accept when trying to achieve its objectives. The enterprise’s objective capacity to absorb loss, The culture towards risk taking—cautious or aggressive.

Risk Tolerance (PP.17~18) Tolerable deviation from the level set by the risk appetite and business objectives Standards require projects to be completed within the estimated budgets and time, but overruns of 10% of budget or 20% of time are tolerated.

Risk Governance – awareness and communication Benefits of open communication on IT risk: The executive mgmt’s understanding of actual exposure to IT risk  informed IT risk responses … P.18 Consequence of poor communication: A false sense of confidence at the top about actual exposure to IT risk  lack of well-understood direction for risk mgmt Responsibility and accountability: Figure 8, P.19

Risk Communication What to Communicate?

Risk Culture

Essentials of risk evaluation (Re Framework, Slide #15) Describing business impact Risk scenarios Can be used to prioritize risks Heart of risk management Measurement is important in this domain

Risk Evaluation – business impact

Risk Evaluation – risk scenarios (PP.25~26)

Essentials of risk response (Re Framework, Slide #15) Key risk indicators (KRIs) Risk response definition and prioritization Measurement also plays important roles here

Risk response Risk avoidance Risk reduction/mitigation Risk sharing/transfer Risk acceptance

Risk response - Risk avoidance Avoidance means exiting the activities or conditions that give rise to risk. Risk avoidance applies when no other risk response is adequate. This is the case when: No other cost-effective options can succeed Risk cannot be shared or transferred Risk is deemed unacceptable

Risk response - Risk sharing/transfer Sharing means reducing risk frequency or impact by transferring or otherwise sharing a portion of the risk. Insurance outsourcing

Risk response - Risk sharing/transfer Sharing means reducing risk frequency or impact by transferring or otherwise sharing a portion of the risk. Insurance outsourcing

Risk response - Risk acceptance No action is taken relative to a particular risk, and loss is accepted when/if it occurs. Different from being ignorant of risk

Risk/Response Definition The purpose of defining a risk response is to bring risk in line with the defined risk tolerance for the enterprise after due risk analysis. In other words, a response needs to be defined such that future residual risk (=current risk with the risk response defined and implemented) is as much as possible (usually depending on budgets available) within risk tolerance limits.

Risk and opportunity

Risk and opportunity IT can play several roles in the risk- opportunity relationship (figure 16): Value enabler – new biz initiatives almost always depend on some involvement of IT The reverse side of the above applies as well: Value destruction – some IT events can cause mild to serious disruption to the organization.

Risk IT Framework Process Model

RISK IT FRAMEWORK PROCESS MODEL Detailed Process Descriptions Process Components Management Practices Inputs and Outputs Management Guidelines Roles and Responsibilities—RACI Chart Goals and Metrics Maturity Models

THE RISK IT FRAMEWORK P.43; PP.43~44 important PP. 49~50, similar to 43~44

Risk IT: The “How” Key contents of The Risk IT Practitioner Guide: Review of the Risk IT process model Risk IT to COBIT and Val IT How to use it: Define a risk universe and scoping risk management Risk appetite and risk tolerance Risk awareness, communication and reporting: includes key risk indicators, risk profiles, risk aggregation and risk culture Express and describe risk: guidance on business context, frequency, impact, COBIT business goals, risk maps, risk registers Risk scenarios: includes capability risk factors and environmental risk factors Risk response and prioritisation A risk analysis workflow: “swim lane” flow chart, including role context Mitigation of IT risk using COBIT and Val IT Mappings: Risk IT to other risk management standards and frameworks