Cyber Control ROI Using Loss-Basis Annualization
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Solution Overview
Problem
Current methods for assessing return on investment (ROI) for cyber risk management of catastrophic events are inadequate, as they fail to accurately annualize the significant losses and costs associated with rare but severe incidents, leading to underinvestment in effective cybersecurity measures.
Innovation Solution
A method and system that calculate the effective annualized cost of capital to cover losses from catastrophic events, using a loss basis as a proxy for ROI, allowing for meaningful comparison and selection of optimal cybersecurity controls.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If traditional ROI assessment methods are used for cyber risk management, then investment decisions are simpler, but the accuracy of loss annualization and ROI calculation is insufficient
Solution Approach 1:
The patent introduces a loss basis as an intermediary concept that bridges the gap between actual losses and annualized losses. The loss basis serves as a mediator that captures the relationship between loss magnitude and annualization factor, enabling more accurate ROI calculations without requiring complex direct annualization models. This intermediary approach simplifies the assessment while improving precision.
Solution Approach 2:
The patent transforms the ROI assessment by changing key parameters: introducing loss basis as a new parameter, modifying how losses are annualized (using loss basis-specific factors instead of generic time-based annualization), and recalculating ROI based on these transformed parameters. This parameter transformation enables more accurate measurement of cyber risk investment returns.
2Reliability
If adequate protection against rare but severe cyber threats is implemented, then organizational security is improved, but investment costs increase
Solution Approach 1:
The patent implements a feedback mechanism where the calculated ROI for each proposed control set feeds back into the decision-making process. By calculating ROI based on accurate loss annualization and comparing it against the organization's ROI threshold, the system provides feedback that guides whether to implement, reject, or adjust control measures. This feedback loop ensures that security investments are both effective and economically justified.
Solution Approach 2:
The patent changes the decision-making parameter from simple cost-benefit analysis to ROI-based analysis with a specified threshold. By transforming the investment criterion into a standardized ROI metric that accounts for loss magnitude, frequency, and control costs, the organization can make more informed decisions about security investments, balancing protection level against investment cost.
3Measurement precision
If multiple proposed sets of controls are evaluated, then optimal control selection is improved, but assessment time and computational effort increase
Solution Approach 1:
The patent segments the control evaluation process by calculating key metrics (loss basis, annualized loss, ROI) for each proposed control set independently and in parallel. This segmentation allows for systematic comparison of multiple control options without creating a computational bottleneck, as each control set can be assessed using the same standardized methodology simultaneously rather than sequentially.
Data Source
AI summary
A method includes calculating, for each proposed set of controls in a plurality of proposed sets of controls for protecting against a specified loss event, a loss basis incurred by an organization due to the specified loss event, assuming the each set of controls is implemented, calculating, for the each proposed set of controls and using the loss basis as a proxy for an effective annualized cost of capital to cover the specified loss event, a return on investment in the each proposed set of controls, delivering to a remote user endpoint device, data summarizing the return on investment for at least a subset of the plurality of proposed sets of controls, receiving a signal from the remote user endpoint device indicating a selection of a selected set of controls from the subset, and modifying a baseline set of controls to implement the selected set of controls.