IT risk management: How to make a risk plan

The days of a single-person IT department being tucked away and forgotten about in a dark and dusty basement corner are long gone. The IT industry is a rapidly growing industry, and knowing how to properly manage and mitigate risks is one of the most important parts of an IT consultant’s job.

The IT industry comes with some significant risks, such as cyberattacks, regulatory compliance, and operational failures. So, how can IT consultants tackle the unique and constant threats they face? IT risk management. 

In this post, we will discuss some of the biggest threats consultants face, walk you through every step of creating an IT risk management plan, and introduce some crucial insurance policies IT consultants should consider. Once you are armed with this knowledge, you’ll be ready to face and manage all the IT world’s risks and threats.

Why is IT risk management important for IT consultants?

No job is free of risks. Whether you run a food truck or work as an executive at a financial firm, your business is going to encounter risks that could cause financial consequences or harm your reputation. And while IT may not be the first thing you think of when imagining high-risk industries, IT workers and consultants face many threats.

For IT consultants, it’s important to identify and manage risks to technology infrastructure and data. The best way to do this? Develop a solid response plan to manage risks. 

IT professionals can significantly reduce the impact of certain risks — including cyberattacks, software failure, or human errors — by properly preparing for each situation and laying out a response plan. No business wants any of these issues to occur, but strategizing your response and prepping your IT team for these situations can make the aftermath much less dire.

What’s more, having an IT risk management plan will help guide future decision-making about controlling and responding to threats without having to jeopardize goals.

Common types of IT risks

As the online world continues to expand, the possibility of malicious attacks or costly mistakes grows. The IT sector has unique threats coming at it from every angle, and there are always gaps in system defenses that make them vulnerable to certain risks.

There are many different potentially dangerous IT risks out there, and it is important for IT professionals to understand them and have solid plans for managing them in place. Here are a few of the most common types of risks IT consultants will face.

Cyberattacks

One of the most prominent threats to IT professionals is cyberattacks. A cyberattack can be a serious risk as criminals may potentially compromise sensitive data, disrupt critical systems and software, and damage organizational reputations. These attacks can also lead to financial losses, legal consequences, and increased stress due to the constant need to stay ahead of evolving threats. 

There are countless different types of cybersecurity threats, and as technology has advanced, these incidents have begun to pose much larger threats to the IT industry.

For example, artificial intelligence has given rise to AI-powered cyberattacks, which are more difficult to identify and are better at penetrating cybersecurity systems. Cybercriminals are also now able to automate cyberattacks, so they are occurring more and more. 

Some of the most common types of cyberattacks include:

• Malware
• Social engineering
• Phishing
• Ransomware
• Trojan horses
• DNS tunneling

Insider threats

Another prominent risk that IT consultants face is insider threats, meaning someone within the organization either intentionally or unintentionally compromises data. These can be a major threat to organizations because internal employees already typically have high-levels of access to software and computer systems.

If the threat is intentional — meaning the employee leaks data or steals sensitive information on purpose — the legal and financial repercussions can be catastrophic.

Unintentional insider threats come from careless or uninformed actions, such as an accidental data breach or improper handling of sensitive information, which can lead to significant operational disruptions. It is incredibly important for IT consultants to have proper security measures in place to combat these risks.

Regulatory compliance

There are strict rules and laws that regulate the IT industry to ensure that sensitive data is secure and that proper security measures are in place. So, IT professionals must stay on top of regulations and ensure their systems are complying with laws to prevent hefty fines and penalties. 

If an IT professional makes a mistake that leads to a data breach or a regulatory rule break, the organization will suffer the consequences. Even if the IT consultant misinterprets a regulation, they may still be hit with sizeable financial penalties. This is why it is incredibly important for IT teams to have a strong understanding of informational technology regulations.

Configuration error

Another extremely common issue in the IT field is configuration errors. These are mistakes or errors that occur during the configuration, development, or installation of new software or IT systems. Depending on the type of software and the scale of the issue, configuration errors can lead to massive network outages or system downtime and can even leave your data unprotected, which can have major consequences for any business.

Operational failures

An IT consultant’s worst nightmare is having major systems fail, causing significant outages in critical systems and infrastructure. There are a number of things that can cause these issues to happen, and unfortunately, they are an inevitable part of many IT professionals’ jobs. 

Remote work

In the last few years, remote work systems have become the norm in some industries. While there have been many upsides to this change, remote work has created some obvious challenges for IT pros. Remote teams tend to have more relaxed security measures, which can leave the door open for cybercriminals. Many remote workers use their personal devices for work, which almost always have weaker cybersecurity systems in place than company-owned devices. Additionally, remote workers tend to use open wifi networks at cafes, coworking spaces, or libraries, which are much easier to hack into than encrypted office space systems.

It is also more difficult for IT consultants to perform important company-wide software updates if all or most of the employees work remotely.

To reduce the risks associated with remote work, IT consultants should require teams to use VPNs and enforce multifactor authentication. Additionally, they should implement strict password complexity policies to ensure that employees are using strong, secure passwords.

IT risk assessment: How to identify risks

In order to effectively respond to risks, you first have to know how to identify them and determine the threat they pose. So, the first step in making your IT risk management plan is to identify the possible risks and assess how damaging each could potentially be. In the following steps, we will walk you through how to conduct an IT risk assessment.

Step 1: Identify risks

You can’t create a plan for what you don’t know, which is why identifying risks should always be the first step in responding to potential threats. In the IT world, things are frequently changing, so it’s important to routinely look into what risks may come about, from where, and when they may occur. 

Remember that no two businesses are exactly the same. So, if you’re identifying risks for a client, be sure to consider the business’s unique qualities, like infrastructure, location, and sector.

For example, a banking company that has not updated its online security systems in some time is at a higher risk of a cyberattack or theft, while a manufacturing firm with outdated operational technology might face greater risks of system failures or disruptions due to aging equipment and lack of measures tailored to industrial control systems.

Step 2: Analyze risks

Once you’ve identified the risks, it’s time to analyze them and determine if the potential impact could be catastrophic, critical, or marginal. Don’t forget to examine how a particular risk could influence project outcomes and objectives.

It is also important to understand the two main types of data used in risk analysis: quantitative and qualitative data.

• Quantitative data analysis involves using metrics and statistics to assess IT risks, such as calculating the probability and potential financial impact of a cyberattack and prioritizing risks based on measurable data.
• Qualitative data analysis is more subjective and relies on expert judgment and options to evaluate IT risks, categorizing them into levels (high, medium, or low) based on factors such as perceived severity and likelihood. Qualitative data analysis is generally used for risk assessment when precise data and statistics are not available.

Step 3: Evaluate and rank risks

Once you’ve identified and analyzed the potential risks, it is time to prioritize them. This is important because knowing which risks pose the biggest threats and, therefore, need to be addressed first can make a big difference in reducing consequences.

The two main factors to consider when ranking and prioritizing IT risks are:

• Likelihood: How probable is the risk of occurring?
• Impact: How big of an impact could the risk have if it occurred?

IT consultants should organize risks based on how likely they are to occur and how severe the potential impact could be. Some risks will be highly likely to occur but not very severe, such as a minor software glitch. While others will be extremely rare but could have critical consequences, such as a major cloud outage.

So, how do you rank the risks? We recommend using a risk matrix to assign specific scores for each individual risk. 

Organizing and prioritizing your IT risks allows you to focus your energy and resources on the most pressing issues. This makes your risk management plan more efficient and effective at tackling major threats.

Step 4: Respond to the risks

After all the risk evaluation is complete and you know which risks will be the most problematic, it’s time to take action. Start with the high-priority threats and address them using risk management strategies, like avoidance measures, contingency plans, and mitigation processes.

Risk management response strategies for IT consultants

Now, you might be wondering, “How do I actually manage the risks after identifying them?” Glad you asked.

There are five standard risk management strategies that you can use to respond to IT risks. Of course, since you’ll have to deal with each IT risk differently, there is no one-size-fits-all solution. By following these strategies, however, you’ll be on the right track to effectively handle IT threats.

Risk avoidance

This may seem obvious, but the most straightforward way to manage risks is to prevent them from occurring in the first place. When it comes to risk avoidance, the focus is on deflecting as many risks as is practical. Risk avoidance may involve restricting certain aspects of a business in order to completely cut out certain IT risks.

There are many different strategies for avoiding IT risks, but some of the most common (and effective) are:

• Implement security measures to prevent cyber attacks (firewalls, two-factor authentication, strong passwords, VPNs, etc).
• Avoid vulnerable technology or software with a poor track record or bad reviews.
• Opt not to collect non-essential data to avoid the possibility of a data breach.
• Choose not to do business with high-risk companies.

While these are all good strategies for avoiding risk, keep in mind that they come with downsides, as they may lead to missing opportunities for growth and innovation.

Risk reduction 

If a risk is unavoidable, then your next best bet is to use a mitigation strategy that focuses on reducing the impact of the risk. There are many ways IT consultants can practice risk reduction. 

For example, it may be possible to minimize the impact of a data breach by limiting who at a company has access to sensitive information. Risk reduction strategies may not completely eliminate the threat of IT risks, but they can significantly decrease the consequences.

With risk reduction, the changes don’t have to be massive to have an impact, but they should come with a process and a plan.

Risk acceptance

We call this the “cross your fingers and hope for the best” strategy. In a nutshell, risk acceptance is where you know the risk and its potential impact, and you accept it for what it is. 

Instead of cutting out factors that could lead to the risk or making changes to mitigate it, you decide that you are willing to face the potential consequences for what they are.

You should carefully weigh the threats before accepting a risk. And it’s important to note that you should only accept a risk if the potential loss would be less than the cost of mitigation.

Risk transfer

The fact of the matter is that most risks simply come with the territory for IT consultants, and while there are plenty of things you can do to prepare for, avoid, and mitigate risks, it’s always best to have a backup plan. This is where risk transfer comes into play. In a case where all other strategies fail, insurance for IT can be a saving grace.

With IT insurance, you can transfer a bulk of the financial risk and liability to a third party — your insurance company. The premise is simple: When you enter into a contract with an insurer and pay a premium, you transfer certain risks from yourself to the insurance company.

Beyond the fact that you protect yourself with IT business insurance, you also provide your clients with peace of mind. In fact, some clients may even require you to have certain policies before finalizing a contract.

Risk sharing

Another strategy for managing and mitigating threats is to share the risks with other consultants or companies to lessen the impact. When a risk is distributed among several parties, the ramifications on each individual are much less as they are spread thinner rather than affecting a single IT consultant or business.

For example, if multiple companies collaborate on developing a cloud-based platform, each company contributes resources and shares both the potential rewards and risks. So, if challenges like delays or security issues arise, the companies share the consequences equally.

Risk monitoring

One of the most important things to keep in mind is that IT risk management isn’t a “set it and forget it” practice. 

Once you’ve analyzed and responded to a specific risk, don’t let it go unattended for too long. It’s crucial to routinely review the progress of risk management strategies and whether they continue to be effective. Just because a risk is out of sight doesn’t mean it should be completely out of mind.

Risk monitoring is like the cherry on top of an IT risk management strategy. You’ll constantly monitor and assess potential risks to ensure that your current risk management efforts are functional.

The IT landscape is constantly changing, and threats to IT professionals can change faster than most other industries. Therefore, it is important to keep a close eye on changes to your business and the industry as a whole, tracking risks and changing their threat level (low, medium, or high) if necessary.

Part of monitoring for risks also involves being on the lookout for new threats that may emerge. After all, your business will change, and your clients’ businesses will change, which means the risks will also change. Not to mention that there will always be external factors that will inevitably bring new risks. Look no further than climate change and the increase in frequency and severity of extreme weather contributing to new risks for businesses. And, of course, we can’t overlook the fact that cybercriminals are constantly finding new ways to access databases, creating more hurdles for IT professionals.

Essential types of insurance for IT risk transfer

As mentioned earlier, there are many different risks for technology companies, which is why there are different types of insurance available to protect your IT consulting business. Let’s dive into some of the most important insurance policies for IT consultants to purchase in order to transfer risks.

Tech E&O insurance

For IT consultants, technology errors and omissions (E&O) insurance should be a top priority. Why? Well, everyone makes mistakes, but for IT consultants, a simple misstep can lead to major setbacks for a business, which can lead to lawsuits. So, it’s important to make sure that an unintentional error or oversight won’t jeopardize your IT consulting business.

For example, let’s say a client sues you because of a mistake you made rolling out a new software for their company. A tech E&O policy would help cover any legal costs, settlements, or fines in that scenario. Tech E&O insurance is specifically designed to protect businesses against risks commonly associated with the rapidly changing tech industry.

Cyber Liability insurance

Another essential insurance policy for IT consultants is cyber liability coverage. It’s no secret that cyberattacks are becoming more common and more costly for businesses. In fact, in 2023, cybercrime cost companies more than $8 trillion worldwide, a number that is only expected to grow in the coming years.

IT consultants are particularly at risk of cyber incidents and data breaches, so it is beyond important to invest in insurance.

Suppose you’re accused of failing to prevent a data breach at a client’s business. A cyber liability insurance policy would cover the costs of investigating the cyberattack, notifying affected third parties, credit monitoring for victims of the breach, civil damages if the client decides to sue, and PR efforts if there is any reputational damage. 

Plus, cyber liability insurance will cover ransom payments in a ransomware attack and losses from many other types of cyber threats.

It’s important to note that cyber insurance doesn’t apply if you’re sued because of any errors you made that resulted in a data breach at a client’s business — that would fall under tech E&O coverage, so we always recommend having both policies.

General Liability insurance

Another insurance policy that is worth considering for IT professionals is general liability coverage. A general liability policy will protect your IT consulting business from many of the common risks that small businesses face. For example, it covers costs associated with bodily injuries on your commercial property (think slips and falls) or when using your products, as well as damages to a client’s property. It also handles costs stemming from slander, libel, and copyright infringement claims.

Commercial Property insurance

If you rent or own a property for your business, such as an office space, you should consider investing in commercial property insurance. This policy covers damage to the building itself and any other business-related property inside the building, like computers, servers, and other essential equipment.

Business Owners Policy (BOP)

We recommend opting for a business owners policy (BOP), which is a bundle of insurance coverage that typically includes three essential policies: general liability, commercial property, and business interruption insurance. This is generally more cost-effective than purchasing each policy individually and provides the most fundamental business insurance coverage that an IT consultancy business would need.

Check out our coverage guide to learn more about BOP and get a BOP quote from our team.

Workers Compensation

While many IT consultants start out as independent contractors, there may come a time when you decide to expand your business and hire employees. All U.S. states (except for Texas) legally require any business with employees to invest in workers compensation insurance. This policy covers any medical bills, lost wages, and other expenses stemming from a workplace injury or illness.

Identify, mitigate, and eliminate your IT risks

Risk management should never be an afterthought, so remember this: Routine vigilance = mitigated risks. As an IT consultant, part of your standard process should be managing risks by assessing factors and creating strategies to avoid them or at least lessen their impact. By proactively managing risks, you can focus on growing your business with confidence.

Of course, part of that vigilance also means ensuring you have the right risk management strategies in place to address risks before they become a serious problem. Interested in learning more about insurance policies that can help protect your IT consulting business from potential risks? Visit Embroker’s digital platform to get an online quote.