SaaS risk assessment template

Software-as-a-service (or SaaS) became mainstream in the early 2000s and has since revolutionized the way businesses operate. Offering everything from cloud-based technology to communications software, analytics, and more, SaaS has certainly had a major impact. 

The SaaS industry is growing at a rapid pace. But with growth comes increased risk. From cyber threats and data breaches to compliance or operational vulnerabilities, it’s important to understand and manage these risks to ensure your company’s success.

This article provides a step-by-step guide to SaaS risk assessment, including:  

• Why risk assessment is essential for SaaS companies
• How to create a comprehensive risk management strategy
• Best practices for minimizing potential threats

Benefits of risk assessment for SaaS companies

Risk assessment allows SaaS companies to identify vulnerabilities and mitigate potential threats. Since the SaaS industry is rapidly evolving, proactive risk assessment can safeguard your operations and help retain customer trust. Let’s take a look at some key benefits of risk assessment in the SaaS industry. 

Prevents financial losses

Many SaaS companies don’t realize how vulnerable they are until it is too late. But the best way to prevent financial loss is to understand and address vulnerabilities in your business before they escalate into major issues. A risk assessment will help you identify and minimize threats, so you can prevent costly data breaches, and avoid service outages or regulatory fines. 

A Risk Profile simplifies the process by identifying potential risks and providing tailored recommendations to protect your business. Get your free Risk Profile today and ensure your company is prepared for potential threats.

Improves incident response

When you assess and analyze risks, you simply become more prepared — making it easier to catch issues before they cause real harm. Risk assessment should be an integral part of an incident response plan as it helps you identify the threats your SaaS business faces and craft a practical plan for responding.

For example, a SaaS company with a configuration error could accidentally expose sensitive customer data. This could lead to a costly data breach that harms your business’ reputation, among other things. A thorough risk assessment can help you act on the issue sooner and minimize the damage.

Protects consumer data

As a SaaS company, it’s your duty to protect any and all sensitive consumer data. SaaS companies often hold personal information about their customers, including payment details, business data, health records, and more. Risk assessments can help your company implement stronger cybersecurity and prevent data breaches from occurring.

Here’s a real-world example: In 2024, hackers exploited compromised login credentials at Snowflake Inc., a major cloud data SaaS platform. The breach exposed sensitive information from over 100 clients, including AT&T, and Ticketmaster. 

Ensures business continuity

While financial penalties and regulatory fines can certainly damage SaaS companies, one of the most pressing issues is threats to business continuity. Assessing and planning your approach for tackling risks such as server outages, natural disasters, or other unexpected disruptions can help you keep your business running even in the worst possible scenario.

How to create a risk management plan for your SaaS business

Man at computer in front of brick wall

Now that we’ve established why risk assessment is an important practice in SaaS, here’s a step-by-step guide to creating an effective risk management plan.

Step 1: Identify common risks that SaaS companies face 

The first step in any risk management plan is to identify the threats your company may face. SaaS companies are exposed to numerous potential risks, so ensure you thoroughly understand them before planning a response. 

Financial risks: 

• Revenue loss due to customer churn
• Cash flow issues

Third-party (vendor) risks:

• Vendor lock-in (becoming too reliant on an unreliable third-party service)
• Data breaches or outages caused by third-party integrations

Regulatory compliance risks:

• Non-compliance with data privacy regulations (e.g., GDPR, HIPAA)
• Fines due to violating other regulations (e.g., PCI DSS)

Cyber and data security risks:

• Data breaches
• Other cyber threats

HR risks:

• Employee misconduct
• Talent retention (for example, failing to hire and retain skilled workers)

Operational risks:

• Ongoing IT issues (software bugs and glitches)
• Issues with scaling
• Inadequate customer support

Intellectual property infringement:

• Copyright or patent infringement 
• Software reverse engineering
• Hardware theft

Step 2: Evaluate the severity of risks

Once you have identified all of the different risks to your SaaS business, you’ll need to analyze the threat level of each risk. This will help you prioritize the most pressing issues and organize the risks based on the amount of damage they could potentially cause. There are two main ways to evaluate risk: quantitative risk assessment and qualitative risk assessment.

Quantitative risk assessment uses metrics and statistical data to assess potential SaaS risks. This may include estimating the likelihood and financial impact of a data breach or service outage and prioritizing these risks based on measurable factors.

Qualitative risk assessment is a more subjective evaluation to classify SaaS risks. Without precise data, risks are categorized as high, medium, or low based on the expected severity and probability. SaaS companies often use qualitative risk assessment when detailed, quantitative data is unavailable.

Step 3: Rank risks based on severity

Knowing which risks pose the biggest threat to your SaaS company is not enough. The next step is to rank lists by how likely they are to occur and their potential impact. 

Here are some examples of three different risks and advice on how to rank them: 

High priority

• SaaS risk: A complete data center failure due to a natural disaster (earthquake, flood, etc.), resulting in prolonged downtime for the SaaS platform and potential loss of critical customer data.
• Impact: Severe
• Likelihood: Very unlikely
• Reason: Even though the likelihood is low, the impact of a complete data center failure would be catastrophic. 

Medium priority

• SaaS risk: A temporary outage of a third-party integration that disrupts services for some customers and hurts the company’s reputation.
• Impact: Moderate
• Likelihood: Somewhat common
• Reason: While not as severe as a data center failure, it’s more likely to occur and still requires attention.

Low priority

• SaaS risk: Minor bugs in the user interface that don’t function as expected, or formatting issues on certain browsers.
• Impact: Marginal
• Likelihood: Common
• Reason: Although these issues may be irritating, they are still low priority. Minor bugs are typically addressed during regular maintenance cycles and won’t have devastating impacts.

Step 4: Minimize the threat that SaaS risks pose

After identifying and prioritizing risks, it’s time to start taking measures to actually reduce the threat they pose. There are hundreds of different risks your company may face, but let’s take a look at some of the best ways to reduce financial, cybersecurity, regulatory, and operational risks in the SaaS industry.

Minimize financial SaaS risks:

• Regularly monitor cash flow: Stable cash flow will allow your SaaS company to pay expenses and run your business without financial hurdles. Inconsistent cash flow can be a major issue for businesses.
• Diversify revenue streams: Avoid relying on a single income source. Doing so can leave your SaaS business vulnerable. We recommend expanding your services, using tiered pricing, and offering add-on services to create a more resilient business model.

Minimize cybersecurity SaaS risks:

• Enforce multifactor authentication (MFA): You can cut down your company’s likelihood of facing a cyber hacking incident by 99% simply by enforcing MFA on company-owned devices.
• Urge staff to use password managers: Password managers allow your staff to store passwords safely and securely. This prevents employees from storing passwords in unsafe locations or physically writing them down. Password managers also generally recommend strong, complex passwords.
• Regularly update and patch software: Outdated software can expose your SaaS platform to vulnerabilities. Regularly updating software and implementing security patches will ensure your system is always prepared for evolving threats.

Minimize SaaS regulatory risks:

• Stay updated on industry-specific compliance standards: SaaS regulations, such as GDPR and PCI DSS are frequently evolving, and staying up-to-date is not always easy. That said, if you can stay on top of regulatory changes, you’ll be much more likely to avoid fines.
• Conduct regular compliance audits: You should regularly review policies, check your security measures, and audit your company’s data handling practices. Doing so allows you to catch any issues and address them before regulatory bodies do.

Minimize operational SaaS risks

• Monitor third-party vendors for potential disruptions. Many SaaS companies rely on third-party services for hosting, payment processing, or integrations. You should consistently assess your vendors’ security and operational performance. Doing so may help you detect server outages or security issues before they occur.
• Create a detailed disaster recovery plan: The truth is that you can’t always avoid incidents, which is why it is important to have a strong disaster recovery plan in place.

Step 5: Monitor ongoing SaaS risks

Risk assessment is an ongoing process, and the risk landscape for SaaS companies is constantly evolving. To stay ahead of the potential threats, you’ll need to consistently monitor emerging threats and change your risk assessment strategy accordingly.

The best advice we can give is to stay proactive with risk assessment and update your management plan as soon as new threats arise. Regularly evaluating your company’s risk exposure is key. A Risk Profile tool helps SaaS businesses identify vulnerabilities and keep plans up to date. By reassessing risks regularly, you can adapt your strategy to tackle new challenges. Start your free Risk Profile today and protect your business.

Step 6: Transfer risk to an insurance provider

While there are many ways to reduce the impact of SaaS risks, it’s always good practice to prepare for a disaster. A business insurance policy will take some of the weight off your shoulders and protect your business from the worst financial losses.

Here are some of the most important business insurance policies for SaaS companies:

• Cyber liability insurance: Protects against data breaches, cyber theft, and other types of cybercrime.
• Business interruption insurance: Helps with financial losses and loss of revenue that occur when your business must temporarily shut down due to incidents such as a natural disaster or system downtime.
• Technology errors and omissions (Tech E&O) insurance: Covers claims related to software issues, product defects, and professional errors that result in financial losses for clients.
• Directors and officers (D&O) insurance: Protects the assets and interests of the executives of your SaaS company, covering claims that are brought up against them while they are performing their professional duties.

Tips for crafting an effective risk management plan for your SaaS company

There is a lot that goes into creating a risk management plan, but your plan’s success depends on how well you maintain it over time. Here are some of the best practices to help ensure your risk assessment strategy remains effective as your SaaS business grows.

Train employees

Your employees are your first line of defense against security threats and operational risks. At the very least, you should invest in cybersecurity and compliance training to ensure your staff are prepared to respond to disasters.

Additionally, you should form a team dedicated to incident response and prevention. 

Automate processes when possible

Manual risk management processes can be time-consuming and are especially prone to human error. With the rise of new risk assessment technology, such as AI and machine learning, it has become much easier to automate tasks. Some of the best automation tools for SaaS risk assessment include:

• Embroker’s Risk Assessment tool
• SentinialOne Singularity XDR
• ProcessUnity

Establish a risk review cadence

As we mentioned before, risk management isn’t a one-and-done task; it’s an ongoing process. Set a consistent schedule for reviewing and updating your risk assessment, whether quarterly or semi-annually. It is also extremely important to regularly audit emerging threats and ensure that your existing mitigation strategies remain effective.

Include scalability in your plan

As with any industry, the intention of most SaaS companies is to expand. As your SaaS company grows, so do your risks. Your risk management plan should be flexible and accommodate growth. For example, if you plan to expand to new markets, you should leave room for that in your risk management plan. Additionally, make sure the infrastructure of your plan and the software you invest in can handle your company as it continues to grow.

Manage your company’s risks and prevent disaster scenarios

Risk assessment protects your SaaS business from financial loss, operational disruptions, and regulatory compliance issues. You can stay ahead of the curve and prevent major financial losses by evaluating your company’s risks and implementing strategies to prevent them from occurring.

To streamline your risk management process, consider using Embroker’s Risk Profile tool. Don’t wait for a crisis to occur. Start building a proactive risk strategy today.