Entries Tagged "cost-benefit analysis"

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Credit Card with One-Time Password Generator

This is a nifty little device: a credit card with an onboard one-time password generator. The idea is that the user enters his PIN every time he makes an online purchase, and enters the one-time code on the screen into the webform. The article doesn’t say if the code is time-based or just sequence-based, but in either case the credit card company will be able to verify it remotely.

The idea is that this cuts down on card-not-present credit card fraud.

The efficacy of this countermeasure depends a lot on how much these new credit cards cost versus the amount of this type of fraud that happens, but in general it seems like a really good idea. Certainly better than that three-digit code printed on the back of cards these days.

According to the article, Visa will be testing this card in 2009 in the UK.

EDITED TO ADD (12/6): Several commenters point out that banks in the Netherlands have had a similar system for years.

Posted on December 4, 2008 at 6:17 AM • View Comments

Online Age Verification

A discussion of a security trade-off:

Child-safety activists charge that some of the age-verification firms want to help Internet companies tailor ads for children. They say these firms are substituting one exaggerated threat—the menace of online sex predators—with a far more pervasive danger from online marketers like junk food and toy companies that will rush to advertise to children if they are told revealing details about the users.

It’s an old story: protecting against the rare and spectacular by making yourself more vulnerable to the common and pedestrian.

Posted on November 21, 2008 at 11:47 AM • View Comments

Giving Out Replacement Hotel Keys

It’s a tough security trade-off. Guests lose their hotel room keys, and the hotel staff needs to be accommodating. But at the same time, they can’t be giving out hotel room keys to anyone claiming to have lost one. Generally, hotels ask to see some ID before giving out a replacement key and, if the guest doesn’t have his wallet with him, have someone walk to the room with the key and check their ID.

This normally works pretty well, but there’s a court case in Brisbane right now about a hotel giving a room key to someone who ended up sexually attacking the woman who had rented the room.

In civil action launched yesterday, the woman alleges the man was given the spare access key to her room by a hotel staffer.

The article doesn’t say what kind of authentication the hotel requested or received.

Posted on November 13, 2008 at 12:12 PM • View Comments

Barack Obama Discusses Security Trade-Offs

I generally avoid commenting on election politics—that’s not what this blog is about—but this comment by Barack Obama is worth discussing:

[Q] I have been collecting accounts of your meeting with David Petraeus in Baghdad. And you had [inaudible] after he had made a really strong pitch [inaudible] for maximum flexibility. A lot of politicians at that moment would have said [inaudible] but from what I hear, you pushed back.

[BO] I did. I remember the conversation, pretty precisely. He made the case for maximum flexibility and I said you know what if I were in your shoes I would be making the exact same argument because your job right now is to succeed in Iraq on as favorable terms as we can get. My job as a potential commander in chief is to view your counsel and your interests through the prism of our overall national security which includes what is happening in Afghanistan, which includes the costs to our image in the middle east, to the continued occupation, which includes the financial costs of our occupation, which includes what it is doing to our military. So I said look, I described in my mind at list an analogous situation where I am sure he has to deal with situations where the commanding officer in [inaudible] says I need more troops here now because I really think I can make progress doing x y and z. That commanding officer is doing his job in Ramadi, but Petraeus’s job is to step back and see how does it impact Iraq as a whole. My argument was I have got to do the same thing here. And based on my strong assessment particularly having just come from Afghanistan were going to have to make a different decision. But the point is that hopefully I communicated to the press my complete respect and gratitude to him and Proder who was in the meeting for their outstanding work. Our differences don’t necessarily derive from differences in sort of, or my differences with him don’t derive from tactical objections to his approach. But rather from a strategic framework that is trying to take into account the challenges to our national security and the fact that we’ve got finite resources.

I have made this general point again and again—about airline security, about terrorism, about a lot of things—that the person in charge of the security system can’t be the person who decides what resources to devote to that security system. The analogy I like to use is a company: the VP of marketing wants all the money for marketing, the VP of engineering wants all the money for engineering, and so on; and the CEO has to balance all of those needs and do what’s right for the company. So of course the TSA wants to spend all this money on new airplane security systems; that’s their job. Someone above the TSA has to balance the risks to airlines with the other risks our country faces and allocate budget accordingly. Security is a trade-off, and that trade-off has to be made by someone with responsibility over all aspects of that trade-off.

I don’t think I’ve ever heard a politician make this point so explicitly.

EDITED TO ADD (10/27): This is a security blog, not a political blog. As such, I have deleted all political comments below—on both sides.. You are welcome to discuss this notion of security trade-offs and the appropriate level to make them, but not the election or the candidates.

Posted on October 27, 2008 at 6:31 AM • View Comments

Does Risk Management Make Sense?

We engage in risk management all the time, but it only makes sense if we do it right.

“Risk management” is just a fancy term for the cost-benefit tradeoff associated with any security decision. It’s what we do when we react to fear, or try to make ourselves feel secure. It’s the fight-or-flight reflex that evolved in primitive fish and remains in all vertebrates. It’s instinctual, intuitive and fundamental to life, and one of the brain’s primary functions.

Some have hypothesized that humans have a “risk thermostat” that tries to maintain some optimal risk level. It explains why we drive our motorcycles faster when we wear a helmet, or are more likely to take up smoking during wartime. It’s our natural risk management in action.

The problem is our brains are intuitively suited to the sorts of risk management decisions endemic to living in small family groups in the East African highlands in 100,000 BC, and not to living in the New York City of 2008. We make systematic risk management mistakes—miscalculating the probability of rare events, reacting more to stories than data, responding to the feeling of security rather than reality, and making decisions based on irrelevant context. And that risk thermostat of ours? It’s not nearly as finely tuned as we might like it to be.

Like a rabbit that responds to an oncoming car with its default predator avoidance behavior—dart left, dart right, dart left, and at the last moment jump—instead of just getting out of the way, our Stone Age intuition doesn’t serve us well in a modern technological society. So when we in the security industry use the term “risk management,” we don’t want you to do it by trusting your gut. We want you to do risk management consciously and intelligently, to analyze the tradeoff and make the best decision.

This means balancing the costs and benefits of any security decision—buying and installing a new technology, implementing a new procedure or forgoing a common precaution. It means allocating a security budget to mitigate different risks by different amounts. It means buying insurance to transfer some risks to others. It’s what businesses do, all the time, about everything. IT security has its own risk management decisions, based on the threats and the technologies.

There’s never just one risk, of course, and bad risk management decisions often carry an underlying tradeoff. Terrorism policy in the U.S. is based more on politics than actual security risk, but the politicians who make these decisions are concerned about the risks of not being re-elected.

Many corporate security decisions are made to mitigate the risk of lawsuits rather than address the risk of any actual security breach. And individuals make risk management decisions that consider not only the risks to the corporation, but the risks to their departments’ budgets, and to their careers.

You can’t completely remove emotion from risk management decisions, but the best way to keep risk management focused on the data is to formalize the methodology. That’s what companies that manage risk for a living—insurance companies, financial trading firms and arbitrageurs—try to do. They try to replace intuition with models, and hunches with mathematics.

The problem in the security world is we often lack the data to do risk management well. Technological risks are complicated and subtle. We don’t know how well our network security will keep the bad guys out, and we don’t know the cost to the company if we don’t keep them out. And the risks change all the time, making the calculations even harder. But this doesn’t mean we shouldn’t try.

You can’t avoid risk management; it’s fundamental to business just as to life. The question is whether you’re going to try to use data or whether you’re going to just react based on emotions, hunches and anecdotes.

This essay appeared as the first half of a point-counterpoint with Marcus Ranum in Information Security magazine.

Posted on October 14, 2008 at 1:25 PM • View Comments

Cost/Benefit of Terrorism Security

“The terrifying cost of feeling safer,” from the Sydney Morning Herald:

Sandler and his colleagues conducted an analysis of the costs and benefits of five different approaches to combating terrorism. I must warn you that, because of the dearth of information, this study is even more reliant on assumptions than usual. Even so, in three cases the cost of the action so far exceeds the benefits that doubts about the reliability of the estimates recede.

Because the loss of life is so low, they measure the benefits of successful counter-terrorism measures in terms of loss of gross domestic product avoided. Trouble is, terrorism does little to disrupt economic growth, as even September 11 demonstrated.

Using the case of the US, Sandler estimates that simply continuing the present measures involves costs exceeding benefits by a factor of at least 10. Adopting additional defensive measures (such as stepping up security at valuable targets) would, at best, entail costs 3.5 times the benefits. Taking more pro-active measures (such as invading Afghanistan) would have costs at least eight times the benefits.

According to Sandler, only greater international co-operation, or adopting more sensitive foreign policies to project a more positive image abroad, could produce benefits greater than their (minimal) costs.

What’s that? You don’t care what it costs because no one can put a value on saving a human life? Heard of opportunity cost? Taxpayers’ money we waste on excessive counter-terrorism measures is money we can’t spend reducing the gap between white and indigenous health—or, if that doesn’t appeal, on buying Olympic medals.

Posted on September 12, 2008 at 6:32 AM • View Comments

Bumblebees Making Security Trade-Offs

I have long been enamored with security trade-offs in the natural world:

A 3D video tracking system revealed that although the bees became very accurate at detecting the camouflaged spiders—they also became increasingly wary.

“When they come in to inspect flowers, they spend a little bit longer hovering in front of them when they know a camouflaged spider is present,” said Dr Ings.

With this “trade-off”, the bees may lose valuable foraging time—but they reduce the risk of becoming the crab spider’s next meal.

Posted on September 8, 2008 at 12:52 PM • View Comments

Security ROI

Return on investment, or ROI, is a big deal in business. Any business venture needs to demonstrate a positive return on investment, and a good one at that, in order to be viable.

It’s become a big deal in IT security, too. Many corporate customers are demanding ROI models to demonstrate that a particular security investment pays off. And in response, vendors are providing ROI models that demonstrate how their particular security solution provides the best return on investment.

It’s a good idea in theory, but it’s mostly bunk in practice.

Before I get into the details, there’s one point I have to make. “ROI” as used in a security context is inaccurate. Security is not an investment that provides a return, like a new factory or a financial instrument. It’s an expense that, hopefully, pays for itself in cost savings. Security is about loss prevention, not about earnings. The term just doesn’t make sense in this context.

But as anyone who has lived through a company’s vicious end-of-year budget-slashing exercises knows, when you’re trying to make your numbers, cutting costs is the same as increasing revenues. So while security can’t produce ROI, loss prevention most certainly affects a company’s bottom line.

And a company should implement only security countermeasures that affect its bottom line positively. It shouldn’t spend more on a security problem than the problem is worth. Conversely, it shouldn’t ignore problems that are costing it money when there are cheaper mitigation alternatives. A smart company needs to approach security as it would any other business decision: costs versus benefits.

The classic methodology is called annualized loss expectancy (ALE), and it’s straightforward. Calculate the cost of a security incident in both tangibles like time and money, and intangibles like reputation and competitive advantage. Multiply that by the chance the incident will occur in a year. That tells you how much you should spend to mitigate the risk. So, for example, if your store has a 10 percent chance of getting robbed and the cost of being robbed is $10,000, then you should spend $1,000 a year on security. Spend more than that, and you’re wasting money. Spend less than that, and you’re also wasting money.

Of course, that $1,000 has to reduce the chance of being robbed to zero in order to be cost-effective. If a security measure cuts the chance of robbery by 40 percent—to 6 percent a year—then you should spend no more than $400 on it. If another security measure reduces it by 80 percent, it’s worth $800. And if two security measures both reduce the chance of being robbed by 50 percent and one costs $300 and the other $700, the first one is worth it and the second isn’t.

The Data Imperative

The key to making this work is good data; the term of art is “actuarial tail.” If you’re doing an ALE analysis of a security camera at a convenience store, you need to know the crime rate in the store’s neighborhood and maybe have some idea of how much cameras improve the odds of convincing criminals to rob another store instead. You need to know how much a robbery costs: in merchandise, in time and annoyance, in lost sales due to spooked patrons, in employee morale. You need to know how much not having the cameras costs in terms of employee morale; maybe you’re having trouble hiring salespeople to work the night shift. With all that data, you can figure out if the cost of the camera is cheaper than the loss of revenue if you close the store at night—assuming that the closed store won’t get robbed as well. And then you can decide whether to install one.

Cybersecurity is considerably harder, because there just isn’t enough good data. There aren’t good crime rates for cyberspace, and we have a lot less data about how individual security countermeasures—or specific configurations of countermeasures—mitigate those risks. We don’t even have data on incident costs.

One problem is that the threat moves too quickly. The characteristics of the things we’re trying to prevent change so quickly that we can’t accumulate data fast enough. By the time we get some data, there’s a new threat model for which we don’t have enough data. So we can’t create ALE models.

But there’s another problem, and it’s that the math quickly falls apart when it comes to rare and expensive events. Imagine you calculate the cost—reputational costs, loss of customers, etc.—of having your company’s name in the newspaper after an embarrassing cybersecurity event to be $20 million. Also assume that the odds are 1 in 10,000 of that happening in any one year. ALE says you should spend no more than $2,000 mitigating that risk.

So far, so good. But maybe your CFO thinks an incident would cost only $10 million. You can’t argue, since we’re just estimating. But he just cut your security budget in half. A vendor trying to sell you a product finds a Web analysis claiming that the odds of this happening are actually 1 in 1,000. Accept this new number, and suddenly a product costing 10 times as much is still a good investment.

It gets worse when you deal with even more rare and expensive events. Imagine you’re in charge of terrorism mitigation at a chlorine plant. What’s the cost to your company, in money and reputation, of a large and very deadly explosion? $100 million? $1 billion? $10 billion? And the odds: 1 in a hundred thousand, 1 in a million, 1 in 10 million? Depending on how you answer those two questions—and any answer is really just a guess—you can justify spending anywhere from $10 to $100,000 annually to mitigate that risk.

Or take another example: airport security. Assume that all the new airport security measures increase the waiting time at airports by—and I’m making this up—30 minutes per passenger. There were 760 million passenger boardings in the United States in 2007. This means that the extra waiting time at airports has cost us a collective 43,000 years of extra waiting time. Assume a 70-year life expectancy, and the increased waiting time has “killed” 620 people per year—930 if you calculate the numbers based on 16 hours of awake time per day. So the question is: If we did away with increased airport security, would the result be more people dead from terrorism or fewer?

Caveat Emptor

This kind of thing is why most ROI models you get from security vendors are nonsense. Of course their model demonstrates that their product or service makes financial sense: They’ve jiggered the numbers so that they do.

This doesn’t mean that ALE is useless, but it does mean you should 1) mistrust any analyses that come from people with an agenda and 2) use any results as a general guideline only. So when you get an ROI model from your vendor, take its framework and plug in your own numbers. Don’t even show the vendor your improvements; it won’t consider any changes that make its product or service less cost-effective to be an “improvement.” And use those results as a general guide, along with risk management and compliance analyses, when you’re deciding what security products and services to buy.

This essay previously appeared in CSO Magazine.

Posted on September 2, 2008 at 6:05 AM • View Comments

Red Light Cameras Don't Work

Interesting: the solution to one problem causes another.

“The rigorous studies clearly show red-light cameras don’t work,” said lead author Barbara Langland-Orban, professor and chair of health policy and management at the USF College of Public Health. “Instead, they increase crashes and injuries as drivers attempt to abruptly stop at camera intersections.”

Comprehensive studies from North Carolina, Virginia, and Ontario have all reported cameras are associated with increases in crashes. The study by the Virginia Transportation Research Council also found that cameras were linked to increased crash costs. The only studies that conclude cameras reduced crashes or injuries contained “major research design flaws,” such as incomplete data or inadequate analyses, and were always conducted by researchers with links to the Insurance Institute for Highway Safety. The IIHS, funded by automobile insurance companies, is the leading advocate for red-light cameras since insurance companies can profit from red-light cameras by way of higher premiums due to increased crashes and citations.

And, of course, the agenda of the government is to increase revenue due to fines:

A 2001 paper by the Office of the Majority Leader of the U.S. House of Representatives reported that red-light cameras are “a hidden tax levied on motorists.” The report came to the same conclusions that all of the other valid studies have, that red-light cameras are associated with increased crashes and that the timings at yellow lights are often set too short to increase tickets for red-light running. That’s right, the state actually tampers with the yellow light settings to make them shorter, and more likely to turn red as you’re driving through them.

In fact, six U.S. cities have been found guilty of shortening the yellow light cycles below what is allowed by law on intersections equipped with cameras meant to catch red-light runners. Those local governments have completely ignored the safety benefit of increasing the yellow light time and decided to install red-light cameras, shorten the yellow light duration, and collect the profits instead.

The cities in question include Union City, CA, Dallas and Lubbock, TX, Nashville and Chattanooga, TN, and Springfield, MO, according to Motorists.org, which collected information from reports from around the country.

Posted on August 25, 2008 at 12:19 PM • View Comments

Kids with Cell Phones in Emergencies

In the middle of a sensationalist article about risks to children and how giving them cell phones can help, there’s at least one person who gets it.

Since the 1999 Columbine High School shootings and the 9/11 terrorist attacks, many parents feel better having a way to contact their children. But hundreds of students on cell phones during an emergency can cause problems for responders.

“There’s a huge difference between feeling safer and being safer,” says Kenneth Trump, president of National School Safety and Security Services.

According to Trump, students’ cell phone use during emergencies can do three things: increase the spread of rumors about the situation, expedite parental traffic at a scene that needs to be controlled and accelerate the overload of cell-phone systems in the area.

Tom Hautton, an attorney for the National School Board Association, said that cell phones in schools also can lead to classroom distractions, text-message cheating and inappropriate photographs and videos being spread around campus.

We are just naturally inclined to make irrational security decisions when it comes to our children.

Posted on August 14, 2008 at 12:20 PM • View Comments

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Sidebar photo of Bruce Schneier by Joe MacInnis.