The Not So Hidden Costs of a Cybersecurity Breach

The world of technology is riddled with complexity and nuance, specificity and detail, connectivity and vulnerability. As this digital era continues to barrel forward at breakneck speeds, all of us have been confronted by headlines of cyber attacks every month, week, and seemingly every day. It begs the question of whether this is the new norm. 

Even still, we see companies handling these successful breaches in a variety of different ways. Some have paid the guilty party of hackers to sweep the matter under the rug, so the SEC and customers alike are unaware of a successful attack and potential harm to consumers.  While others have rid themselves of entire management teams to separate the event from their brand and give the appearance of blazing a new and secure data trail. And, there’s a growing third party who have taken responsibility for their missteps, made promises to their customers to provide the security they so rightly deserve, and have acted to implement new security measures. With these three methods of handling a successful breach and all those in between, there are associated costs. In this article, we will explore these “not-so-hidden costs” and what they can mean for companies around the world.

Recently, in an IBM sponsored study executed by the Ponemon Institute, it was discovered that the average financial impact of a data breach for an organization has reached $3.86 million, based upon data from 500 organizations that participated in the study. Interestingly, one-third of this cost was derived from lost business, leaving one to wonder if this variable cost could be somewhat controlled by the how an organization handles a successful breach.

Additionally, according to an IBM-Harris poll, 75% of US consumers say they would not do business with a company who they believe had not taken the necessary measures to protect their data. But, it is still unclear as to how long these consumer sentiments may last due to an actual breach; and therefore, the total cost of a breach is truly incalculable. 

IBM has been able to assert that on average the per record cost of a data breach to a company is $148. Let’s take a closer look to discover some of the hidden variable costs rolled into this average.

Organizations that experience a successful data breach can experience…

1)     Loss of contract revenue; including current and future income as well as opportunity for income due to contractual agreements.

2)     Increased Insurance Premiums. A recent breach can change a company’s risk profile in such a way that it causes the victim organization to be perceived as a riskier policyholder.

3)     Increased cost of raising capital, having to accept higher interest rates as a result of a decreased credit rating.

4)     The destruction or disruption of normal business operations, which can be incredibly costly depending on the extent of a breach, type of equipment and facilities involved, and degree of repairs needed. Additionally, such damages and costs can greatly impact a company’s ability to deliver products or services, proving to be a true cost multiplier.

5)     Loss of intellectual property; including trademarks, patents, copyrights, investment plans, and designs. This can greatly influence the economic future of a company and their ability to maintain market share.

Though cyber incidents begin as a problem within technology, these issues quickly spread by making their presence known in more tangible and classically noteworthy areas of a business. These are some of the ‘not-so-hidden’ costs associated with data breaches today.