7. [Basics of risk management] Suppose that you are a security administrator in some organization. You receive a report from a cybersecurity company stating that:
a. Cyberattacks against your organization’s network (in the present configuration) will result in an average yearly loss of $250,000 for the next 4 years.
b. A network security defense mechanism, which will prevent these attacks with probability 99.9%, will cost $500,000 for installation (one-time spending), and yearly cost $137,500 in maintenance.
Assuming that you trust the company’s estimates, would you choose to deploy this defense mechanism or not? Explain your answer.
To determine whether to deploy the defense mechanism, we need to compare the potential losses without the mechanism to the costs of installing and maintaining it.
1. Without the defense mechanism:
- Average yearly loss: $250,000
- Total loss over 4 years: $250,000 x 4 = $1,000,000
2. With the defense mechanism:
- Cost of installation: $500,000 (one-time spending)
- Yearly maintenance cost: $137,500
- Total cost over 4 years: $500,000 + ($137,500 x 4) = $500,000 + $550,000 = $1,050,000
Comparing the total cost of implementing the defense mechanism ($1,050,000) to the potential losses without it ($1,000,000), we can see that the cost of implementing the mechanism is higher. Therefore, based on a purely financial analysis, it may not be beneficial to deploy the defense mechanism.
However, it is important to consider other factors such as the potential impact of a cyberattack on the organization's reputation, legal implications, and customer trust. If the organization determines that preventing such attacks is critical to its operations and overall risk management strategy, then the decision to deploy the defense mechanism may be justified despite the higher cost.
To determine whether to deploy the defense mechanism or not, we need to consider the costs and potential losses associated with the cyberattacks.
The report states that cyberattacks will result in an average yearly loss of $250,000 for the next 4 years. So, over these 4 years, the total loss without the defense mechanism would be:
Loss without defense mechanism = Average yearly loss * Number of years
= $250,000 * 4
= $1,000,000
Now let's analyze the cost of deploying the defense mechanism. The installation cost is $500,000 (one-time spending), and the yearly maintenance cost is $137,500.
Total cost of deploying the defense mechanism over 4 years = Installation cost + (Yearly maintenance cost * Number of years)
= $500,000 + ($137,500 * 4)
= $500,000 + $550,000
= $1,050,000
Comparing the total cost of deploying the defense mechanism ($1,050,000) with the total loss without it ($1,000,000), we can see that the cost of the defense mechanism is higher.
Therefore, based on the financial analysis alone, it might not be cost-effective to deploy the defense mechanism. However, this decision may vary depending on other factors such as the organization's risk appetite, the value of the assets being protected, and other potential consequences of a successful cyberattack.
It is also essential to note that while the defense mechanism claims a 99.9% probability of preventing attacks, it may still leave a small likelihood of attacks occurring. This residual risk should also be taken into account when making the decision.