InfoSec Measurement and Quantitative vs Qualitative Methods Recorded Webinar Here: https://www3.gotomeeting.com/register/604059902 Aliado and Risk Centric Security would like to introduce you to the world of quantitative risk and decision analysis. Our webinars will provide you with a glimpse of the power and credibility that quantitative methods can bring to the problems that Information Security Professionals face every day Topics covered include: What is risk? Possibility and Probability What is a measurement and what is it for? Qualitative vs. Quantitative methods Static modeling vs. Monte Carlo simulation Calibration and the power of a calibrated estimate Modeling Expert Opinion and the RCS BetaPERT calculator A. Definitions 1. Risk 2. Risk and Opportunity 3. Possibility vs. probability 4. Measurement 5. Precision vs. accuracy 6. Qualitative vs. quantitative methods

1. Measurement,Qualitative vs. Quantitative Analysis,and other Cool Stuff Presenting: Risk Centric Security, Inc. www.riskcentricsecurity.com Sponsor: Aliado www.aliadocorp.com Risk Centric Security, Inc. Confidential and Proprietary . Copyright © 2011 Risk Centric Security, Inc . All rights reserved. Risk Analysis for the 21st Century

2. Introductions Heather Goodnight is an accomplished Global Sales and Business Development Consultant. Over the years, her unique, practical insight into problems of risk and opportunity have provided important guidance for organizations both large and small. She is a cofounder of Risk Centric Security and currently serves as President of the Corporation. Patrick Florer has worked in information technology for 30 years. In addition, he worked a parallel track in medical outcomes research, analysis, and the creation of evidence-based guidelines for medical treatment. His roles have included IT operations, programming, and systems analysis. From 1986 until now, he has worked as an independent consultant, helping customers with strategic development, analytics, risk analysis, and decision analysis. He is a cofounder of Risk Centric Security and currently serves as Chief Technology Officer. Risk Centric Security, Inc. Confidential and Proprietary . Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

3. Houston, we have a problem … When speaking with our customers, we recognized: Information Security Professionals are comfortable speaking the technical language of firewalls, logs, threats, vulnerabilities, and exploits. Business managers are comfortable speaking the language of return on investment, discounted cash flows, and risk as financial impact. Mutual misunderstanding can occur, and it is often a source of frustration for everyone. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

4. So how do we bridge the language gap? By learning to speak about risk in business terms, Information Security Professionals can reach out and bridge the language gap. The technical details of sql injection attacks may be important to you, but your business counterparts may not understand, and they usually don’t care. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

5. So how do we bridge the language gap? Instead of talking about threats, vulnerabilities, and controls, talk about risk in terms of financial impact. Tell the business people what a sql injection attack could cost. They will understand that! (They may not believe you, but they will understand what you are saying!) Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

6. What are we going to talk about today? Risk Risk and Opportunity Possibility vs. probability Measurement Precision vs. accuracy Qualitative vs. quantitative methods The “not enough data” syndrome Monte Carlo simulation Modeling expert opinion and the PERT distribution Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

7. What is risk, anyway? From The American Heritage dictionary*: The possibility of suffering harm or loss; danger. A factor, thing, element, or course involving uncertain danger; a hazard. The danger or probability of loss to an insurer. The amount that an insurance company stands to lose. The variability of returns from an investment. The chance of nonpayment of a debt. *The American Heritage® Dictionary of the English Language, Fourth Edition. Copyright © 2006, 2000. Houghton Mifflin Company. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

8. What is risk, anyway? From ISO 31000: 1.1 risk - effect of uncertainty on objectives NOTE 1 An effect is a deviation from the expected —positive and/or negative. NOTE 2 Objectives can have different aspects (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organization-wide, project, product and process). NOTE 3 Risk is often characterized by reference to potential events (3.5.1.3) and consequences (3.6.1.3), or a combination of these. NOTE 4 Risk is often expressed in terms of a combination of the consequences of an event (including changes in circumstances) and the associated likelihood (3.6.1.1) of occurrence. NOTE 5 Uncertainty is the state, even partial, of deficiency of information related to, understanding or knowledge of, an event, its consequence, or likelihood Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

9. What is risk, anyway? In the USA, NIST, Special Publication 800-30 describes risk in the following way: Risk is: “the net mission impact considering the probability that a particular threat-source will exercise (accidentally trigger or intentionally exploit) a particular information system vulnerability, and the resulting impact if this should occur.” Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

10. What is risk, anyway? NIST (The National Institute of Standards and Technology), provides an additional definition of risk in Special Publication 800-39: Risk A measure of the extent to which an entity is threatened by a potential circumstance or event, and typically a function of: (i) the adverse impacts that would arise if the circumstance or event occurs; and (ii) the likelihood of occurrence. Information system-related security risks are those risks that arise from the loss of confidentiality, integrity, or availability of information or information systems and reflect the potential adverse impacts to organizational operations (including mission, functions, image, or reputation), organizational assets, individuals, other organizations, and the Nation. NIST, The National Institute of Standards and Technology, Special Publication 800-39, Appendix B, Page B-7. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

11. What are the common elements here? A probability that something will happen A probable impact if something does happen Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

12. What, then, is our working definition of risk? The probability that something will happen to cause a negative impact in financial terms:For example, a 50% chance that it will cost 50 million dollars if our data are stolen. Another way to express this is to multiply the two numbers together and say that: Risk = 25 million dollars on an annualized basis Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

13. Risk and Opportunity For our discussion today, Risk will be used to indicate loss or harm. Opportunity can be viewed as the positive aspect of Risk. The techniques that apply to Risk analysis can also be applied to Opportunity analysis. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

14. Possibility and Probability Let’s look at tossing a coin: What are the possibilities? What are the probabilities? Does knowing either help us predict what will happen when we toss the coin next time? Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

15. Possibility and Probability A possibility is something that is “capable of happening, existing, or being true without contradicting proven facts, laws, or circumstances known to be true. *” A probability is "the likelihood that a given event will occur.”* *All quotes from The American Heritage® Dictionary of the English Language, Fourth Edition. Copyright © 2006, 2000. Houghton Mifflin Company. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

16. Possibility and Probability In statistics, a probability is “a number expressing the likelihood that a specific event will occur, expressed as the ratio of the number of actual occurrences to the number of possible occurrences.“ Probability is calculated after tossing the coin many times. Probability is always a number between 0 and 1, sometimes expressed as: *All quotes from The American Heritage® Dictionary of the English Language, Fourth Edition. Copyright © 2006, 2000. Houghton Mifflin Company. 0 <= P(X) <= 1 Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

17. Possibility and Probability How can we use this in information security risk analysis? The fact that something can happen (possibility) doesn't tell us how likely it is to happen (probability), or how much impact it might have if it does happen (probability). Estimating these values helps us prioritize our activities in a rational way. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

18. Measurement What is a measurement? An observation that “ascertains the dimensions, quantity, or capacity of” an object or process”* A set of observations that reduce uncertainty where the result is expressed as a quantity** *The American Heritage® Dictionary of the English Language, Fourth Edition. Copyright © 2006, 2000. Houghton Mifflin Company ** Hubbard, Douglas W., “How to Measure Anything 2nd Edition”, John Wiley & Sons, New Jersey, 2010, p. 23 Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

19. Measurement What are the properties of a measurement? Validity – does the measurement actually do what you think it does? Reproducibility – when repeated, does the measurement give a consistent answer? Detail – does the measurement provide a useful level of detail? Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

20. Measurement What are some sources of error in measurement? Random error – a function of the instrument Bias – a function of the measurement taker Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

21. Measurement Why do we make measurements? Measurements are a way to collect data. Making measurements should be about reducing uncertainty. A measurement only has to be good enough for the decision at hand. Sometimes, you cannot get the data you think you need, so you have to use a proxy. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

22. Precision and Accuracy Precision is “the ability of a measurement to be consistently reproduced.” Accuracy is “the ability of a measurement to match the actual value of the quantity being measured.” *All quotes from The American Heritage® Dictionary of the English Language, Fourth Edition. Copyright © 2006, 2000. Houghton Mifflin Company. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

23. Precision and Accuracy Precision: a machine can produce the same part to within 1/1000th mm all day long. This is no guarantee that the part is the correct length, however. Accuracy: a machine can produce the same part to within +/- 2/1000th mm of the correct length. Although some parts are a bit shorter and some are a bit longer, every part is within spec. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

24. Precision and Accuracy Precision: 100.001, or 10.233% Accuracy: 100 or 10%, or 10.2% Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

25. Precision and Accuracy Prefer Accuracy to Precision. Precise Accuracy? – it would be nice! Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

26. Qualitative and Quantitative Methods Qualitative methods: green, yellow, orange, and red (dashboards) or a scale from 0 – 5 (categorical, nominal, and ordinal). Quantitative methods: real numbers (cardinal scale). Most of the time, quantitative methods are easier. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

27. Qualitative Methods Benefits of qualitative methods? They are useful in certain scenarios, and can be quick and good enough. Problems with qualitative methods? Variability between assessors Inconsistency of a single assessor Arithmetic and statistical operations not possible Problems near the boundaries of categories Loss of information Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

28. Qualitative Methods Variability between assessors Faced with the same set of facts, different assessors apply a scale differently. Two QSA’s apply the PCI standards differently. Two risk analysts classify risks differently – one says low, one say medium Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

29. Qualitative Methods Inconsistency of a single assessor Given the same set of facts, an assessor might make different assessments when the only difference is the passage of time. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

30. Qualitative Methods Difficulty with arithmetic and statistical operations From ISO 17999 Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

31. Qualitative Methods Difficulty with arithmetic and statistical operations From ISO 17999 Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

32. Qualitative Methods Difficulty with arithmetic and statistical operations From ISO 17999 Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

33. Qualitative Methods Difficulty with arithmetic and statistical operations Imagine if money worked this way: The value of a dollar would be relative to the purchase price of an item. The value of a dollar might vary from store to store. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

34. Qualitative Methods Problems with aggregation and estimates near the boundaries of categories Assume that: Low = < 1M Medium = 1M – 5M High = >5M Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

35. Qualitative Methods And assume that the following risks have been identified and put into categories: $100K, 500K, 800K: all in Low category $1M, 3M, 3M, 4M: all in Medium category Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

36. Qualitative Methods What happens when you aggregate based upon qualitative scales? What is the real difference between a very “high Low” and a very “low Medium”? How can we justify and defend category boundaries that are essentially arbitrary? Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

37. Qualitative Methods Loss of information Most of the time, we get a number in mind. Then, we assign it to a category. Why not just keep the number? Or better yet, create a distribution around a range of estimates to better express our beliefs and confidence? Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

38. Quantitative Methods Benefits of quantitative methods? The numbers mean what they are (cardinality). Arithmetic and statistical methods are possible. Problems with quantitative methods? Data are required. Estimates are estimates – the future hasn’t happened yet. Formal training in calibration techniques is very helpful. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

39. ”We don’t have enough data!” They say: there isn’t enough “good” data, so you are just processing “garbage in and garbage out.” The reason we need data is to reduce uncertainty in decision-making. The decision we need to make will define the data we need – some decisions require very little data, others require quite a bit. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

40. How much data do we really need? A sample can be smaller than you think. Parametric vs. non-parametric methods Contact us for more information on these topics. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

41. What is the definition of “good” data? We often hear that the data are poor – What does this mean? Data are just data – some data may be more interesting than other data – it depends on what you are doing. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

42. Interesting data collection projects Dan Geer et al.: The Index of Cybersecurity (http://www.cybersecurityindex.org/) Prediction Market Project The Beewise Project (http://beewise.org/markets/metricon.ctrl) Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

43. ”We don’t have enough data!” - Sources Please refer to the slides at the end of this presentation. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

44. Monte Carlo Simulation Monte Carlo simulation is a game changer for information security risk analysis. Less sophisticated methods use single-point estimates or even simple ranges of estimates: 35%, or from 20% - 51% Monte Carlo methods sample thousands or tens of thousands of values, and provide a much clearer picture of the possible outcomes. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

45. The Beta Pert Calculator Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

46. The Beta Pert Calculator Minimum: What is the least or lowest (best or worst) numerical estimate that you believe to be reasonable? This will be the smallest number you come up with. Most Likely: What is the most likely or most probable numerical estimate in your opinion? This number must fall between the minimum and maximum. It may equal either the minimum or the maximum, but should not equal both Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

47. The Beta Pert Calculator Maximum: What is the greatest or highest (best or worst) numerical estimate that you believe to be reasonable? Note that “best” or “worst” case estimates could be either minimum or maximum values, depending upon the scenario. In a risk / loss exposure scenario, lower is better, so the minimum represents the lowest loss, or best outcome. The maximum represents the highest loss, or worst outcome. In a sales or opportunity scenario, it’s the reverse: lower is not better, so the minimum represents the worst case. Higher is better, so the maximum represents the best case. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

48. The Beta Pert Calculator Confidence: On a scale that includes “Very Low”, “Low”, “Average”, “High”, and “Very High”, how confident are you in the accuracy of your estimates? This parameter controls the sampling around the most likely value, and thereby also controls the height of the histogram or slope of the cumulative plot. For most analyses, using “Average” for the confidence parameter works well. In this instance, “Average” really means having no strong feeling about the matter – being evenly divided between under-confidence and over-confidence. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

49. The Beta Pert Calculator Percentile Tables Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

50. The Beta Pert Calculator PercentileTables 1% of values are <= 10,044 and 99% are > 10,044 10% of values are <= 11,120 and 90% are > 11,120 20% of values are <= 11,658 and 80% are > 11,658 50% of values are <= 13,025 and 50% are > 13,025 The 50th percentile has another name - it’s called the Median. The Median is the mid-point in a list of values - half of the values in the list are less and half are greater than the Median. Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

51. The Beta Pert Calculator Histogram Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

52. The Beta Pert Calculator Cumulative Plot Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

53. Thank you ! Heather Goodnight Patrick Florer Co-founders Risk Centric Security, Inc heather@riskcentricsecurity.com patrick@riskcentricsecurity.com www.riskcentricsecurity.com 214.405.5789 Jody Keyser Aliado jkeyser@aliadocorp.com Risk Analysis for the 21st Century Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

54. ”We don’t have enough data!” - Sources Open Security Foundation: datalossdb and osvdbhttp://www.opensecurityfoundation.org/ Computer Security Institute (CSI): http://gocsi.com/ Office of Inadequate Security: http://www.databreaches.net/ Identity Theft Resource Center: http://www.idtheftcenter.org/ ISACA: www.isaca.org ISSA: www.issa.org Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

55. ”We don’t have enough data!” - Sources Mitre Corporation: www.mitre.org OWASP: http://owasp.com/index.php/Main_Page Privacy Rights Clearing House: http://www.privacyrights.org/ SANS: www.sans.org The Ponemon Institute: www.ponemon.org Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

56. ”We don’t have enough data!” - Sources Conference procedings: Black Hat, RSA, Source Conferences, BSides Internet tools: Search engines: Google, Bing, Yahoo, Ask.com Trend Analyzers: Google trends: http://www.google.com/trends Twitter Trends: www.trendistic.com Amazon: http://www.metricjunkie.com/ Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.

57. ”We don’t have enough data!” - Sources Securitymetrics.org – mailing list Society of Information Risk Analysts (SIRA) Risk Centric Security, Inc. Confidential and Proprietary. Copyright © 2011 Risk Centric Security, Inc . All rights reserved.