IT Consultant Insurance Guide: IT Risk ManagementRisk Management
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The days of a single-person IT department being tucked away and forgotten about in a dark and dusty basement corner are long gone. With the IT industry rapidly increasing in demand do you know the processes associated with IT risk management?
There’s no question that IT is critical to today’s business world, and IT consultants have become instrumental in getting that work done.
In the U.S., the market size of the IT consulting industry increased by more than 30% between 2011 and 2019, reaching a value of $524.5 billion. The industry’s revenue decreased ever-so-slightly to $524 billion in 2020 but is expected to grow by more than 10% this year.
But the growth and prevalence of IT consulting also comes with some significant risks, like cyber attacks. So, how can IT consultants tackle the unique and constant threats facing the IT realm? IT Risk management.
Understanding IT risk management is the first step in mitigating threats and protecting your clients and your own business. Because ignoring risk doesn’t make it go away.
Here’s a look at what you need to know to get started.
Why Is IT Risk Management Important for IT Consultants?
Every job has risks. Whether you run a food truck, work as a dental hygienist, do part-time work as a travel guide, or are a C-level executive at a financial firm, business risks, though different for every position, exist.
And IT consultants are no exception. For IT consultants, it’s important to identify risks to technology infrastructure and data, whether yours or a client’s, and develop a response plan to manage risks.
For example, by preparing for potential threats, IT consultants can be better positioned to respond to cyber attacks and, in turn, minimize the impact of a cyber incident. But aside from data breaches, IT risks can also include hardware and software failure, human error, and even natural disasters, such as fires and floods.
The IT sector has unique threats coming at it from every angle, and every IT system has gaps in its defense that make it vulnerable to certain risks. But recognizing weaknesses and addressing them as part of a risk management plan can help alleviate risks proactively.
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.
Conducting an IT Risk Assessment
In order to respond to risks, you first have to know what the risks are and determine the threat they pose. That’s why a risk assessment is a critical part of any risk management plan. The following steps provide an overview of how to conduct an IT risk assessment.
You can’t plan for what you don’t know. That’s why identifying risks is a vital first step in responding to potential threats. Things in the IT world frequently change, 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.
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.
Evaluate and Rank Risks
Knowing which risks need to be addressed first is critical for avoiding disastrous consequences. After you’ve analyzed the potential impact of risks, take a close look at them to gauge the likelihood of each occurring and whether you need to take action. You’ll want to decide which risks pose the most problems and then rank them in order of importance.
It may seem easy enough to start tackling risks as you come across them, but don’t skip this step. Prioritizing risks will go a long way toward helping you make informed decisions about risk management, including allocating resources and funds.
Respond to the Risk
After all the risk evaluation is complete and you know which risks will be 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 Strategies for IT Consultants
Now, you might be wondering, ‘What in the world are risk management strategies all about?’ Glad you asked.
While there are four standard risk management strategies, there is no one-size-fits-all solution. Since each risk comes with different levels of, well, risk, it’s essential to select the appropriate strategy for dealing with each one.
The most straightforward way to manage risks is to avoid them altogether in the first place. When it comes to risk avoidance, the focus is on deflecting as many risks as is practical.
Of course, many risks are unavoidable, but some don’t have a substantial impact on how a business operates. For example, a company may limit the type of customer information it stores in case of a data breach.
However, keep in mind that avoiding risks comes with a risk of its own, since avoidance strategies may lead to missing opportunities for growth and innovation.
If a risk is unavoidable, then using a mitigation strategy that focuses on reducing the impact of the risk can be useful. There are many ways IT consultants can practice risk reduction. For example, it may be possible to minimize risk by limiting who at a company has access to sensitive information to avoid data leaks.
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.
We call this the “Cross your fingers and hope for the best strategy.” In a nutshell, this strategy is where you know the risk and its impact, and you accept it for what it is. Risk acceptance comes after carefully weighing the costs of mitigating the threat in question against the potential expenses if the risk happens. It’s important to note that you should only accept a risk if the potential loss would be less than the cost of mitigation.
Now, what if you could transfer risks to someone else? That’s where insurance comes in.
With business insurance, you can transfer a bulk of the financial risk to a third party – your insurance company. The premise is simple: When you enter into a contract with an insurer, you pay a fee to transfer certain risks from yourself to another party.
As mentioned earlier, there are many different risks, which is why there are different types of insurance available to protect your IT consulting business.
For IT consultants, technology errors and omissions (E&O) insurance should be a top priority. Why? Because we all make mistakes. But 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 their new software. A tech E&O policy would help cover your legal costs in that scenario. Tech E&O insurance is specifically designed to protect businesses against risks commonly associated with the rapidly changing tech industry.
Another essential insurance policy for IT consultants is cyber liability coverage. It’s no secret that cyber attacks are becoming more and more common. In fact, 2021 was a record year for cyber attacks. According to the Identity Theft Resource Center’s 16th Annual Data Breach Report, the number of data compromises in 2021 was up more than 68% compared to 2020. That smashes the previous all-time high of 23%. What’s more, it’s estimated that 30,000 websites globally are hacked daily, with a new security breach occurring every 39 seconds.
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 cyber attack, 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. 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 it’s a good idea to have both policies.
It’s also worthwhile to consider adding general liability coverage to your insurance repertoire. 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.
Plus, general liability insurance can be bundled into a business owners policy (BOP), which includes business interruption insurance and commercial property insurance, providing crucial business insurance coverage at a lower price than buying the policies separately.
It’s also worth noting that having insurance not only protects you financially, but clients may require you to have certain policies before finalizing a contract.
Monitoring IT Consulting Risks
One of the most important things to keep in mind is that 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.
Part of monitoring for risks also means 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 we can’t overlook the fact that cybercriminals are constantly finding new ways to access databases, creating more cybersecurity risks.
Risk management should never be an afterthought, so remember this: Routine vigilance = mitigated risks.
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? Contact one of our experienced brokers or visit Embroker’s digital platform to get an online quote.