Credit: Bermix Studios
There’s no question that a data breach can have a huge financial impact on a company in terms of payout to those responsible for the cyber attack.
IBM and the Ponemon Institute estimated the average cost of a data breach for US companies in 2021 to be nearly $4.24M which rose 10% from 2019’s data. Globally, the annual cost was reported to be around $6T annually in large part due to the increase in ransomware attacks. However, looking further, payout to criminals isn’t included in this estimate, so how is a data breach cost measured?
Contributing Factors of a Data Breach
While monetary costs paid to those holding data for ransom can play a part in an average data breach cost, it isn’t the only contributing factor or even the largest. Additional factors that contribute to the total cost of a data breach include:
- Diminished reputation
- Loss in revenue
- Customer turnover
- Drain on employee productivity
- Legal and regulatory fees
A diminished reputation is one of the worst consequences of a data breach for any company, but for small or medium-sized businesses, it could spell disaster.
There’s a lot of competition for businesses trying to obtain new clients, which is why it’s imperative to have a solid and positive reputation to avoid lost business. A data breach can significantly reduce the public’s trust in a company resulting in lost opportunities as potential new clients turn to the competition.
Loss in Revenue
A 2013 IBM and Ponemon Institute study determined that businesses affected by a data breach noticed a loss in revenue between $20,000 to $5,000,000 over two years following the breach. These figures consider the loss of current clientele and the inability of a business to obtain new customers.
For a large enterprise, the money loss is negligible, but small and medium-sized companies could potentially lose their business.
You work hard to retain a customer’s trust in your company to ensure they return for repeat business. However, when a data breach occurs, clients tend to look elsewhere to obtain their needed goods and services, especially when personal data is involved. The resulting loss of revenue from customer turnover could dramatically affect your bottom line.
Drain on Employee Productivity
When faced with a breach, companies tend to put everything else on hold and divert resources away from other departments in favor of the IT team working on the breach. Many employees start to feel increased stress from additional work with fewer resources which in turn causes productivity to dip. A drop in productivity results in a loss of revenue which contributes to the overall costs.
Legal Fees for a Data Breach
A data breach can happen at any time due to several variables, which is why they typically don’t come with legal repercussions outside a personal or class action lawsuit. A company will only have to pay penalties or data breach settlement fees if they fail to file a data breach report to the U.S. Securities and Exchange Commission (SEC).
If a vulnerability is found, public companies must fill out and submit a Form 8-K to the SEC. Failure to do so could result in hundreds of thousands of dollars in penalties or settlements, contributing to an increased cost from a data breach.
Credit: Markus Spiske
For businesses that operate on the cloud, having a hybrid cloud environment costs companies less than choosing a public, private or on-premise cloud model.
The research also found that thanks to the global pandemic in 2020, companies were inadequately prepared for the number of employees that transitioned to remote work. Without proper cybersecurity measures in place, companies found themselves falling victim to these devastating attacks. The cost of a breach was nearly one million on average higher for companies with remote employees. It also took much longer for businesses with remote workers to detect and contain a breach, leading to one of the biggest contributing factors of data breaches: time.
Biggest Contributing Factor of a Data Breach
One of the biggest cost factors in calculating the true costs of a data breach is time. Although companies often talk about the revenue loss, it’s almost always due to the amount of time it takes for teams to uncover and address a problem, implement data breach recovery strategies and get your business operational.
Even if it only takes days to identify a vulnerability or breach, there could be lasting repercussions spanning months or years.
Reduce Your Risk of a Data Breach with Outsource Solutions Group
In 2021, companies implementing a zero-trust architecture saved their business an average of almost two million dollars over companies that did not include zero-trust in their data security strategies. Additionally, there was an 80% reduction in data breach costs with security AI and automation.
Partner with OSG to ensure there are no gaps in your security coverage that could be exploited to gain access to your systems.
You’ll benefit from enhanced data protection and device encryption that make accessing a device without proper log-in credentials nearly impossible. We implement a zero-trust firewall architecture, sandboxing, and routine security patches that ensure no unwanted visitors can obtain access to your systems. Through routine vulnerability testing and system assessments, we’re able to detect and contain a potential breach before it causes damage.
Don’t leave yourself vulnerable. Contact Outsource Solutions Group for advanced security strategies that will stop a breach before it impacts your bottom line.