How to Quantify the Actual Cost of a Data Breach for Your Own Organization

As business leaders, we need to know what the biggest risks to our organizations are. All organizations face numerous disruptive challenges in today’s business environment that can create significant new business opportunities, but also can increase potential cybersecurity risks to the organizations. To address these issues, we need to focus our scarce resources on those business risks that will have the most disruptive impact on our business.

Your organization’s security environment needs risk quantification as part of your comprehensive strategy for risk management to adapt to the ever-changing threat landscape. This factor is the reason why the annual Cost of a Data Breach Report for 2021 features and discusses security risk quantification as a key topic.

The Cost of a Data Breach Report gives you a high-level view of the potential business impact of a data breach. By reviewing trends of hundreds of data breaches collected worldwide in 2020, you get a scenario of the cost range you face for a data breach in your industry and geographic location. Clients who use risk quantification can determine their own specific risk picture, including annual probability, which might be higher or lower than the Cost of Data Breach data.

Download the Report

Security Risk Quantification Highlights from the Report 

Sponsored, analyzed and published by IBM Security — with research conducted independently by the Ponemon Institute — the 2021 report studied 537 real breaches across 17 countries and regions and 17 different industries. As in the 2020 report, vulnerabilities in third-party software ranked among the top four most frequent initial attack factors listed.

Making up 14 percent of breaches in the survey, the average cost to companies of vulnerabilities in third-party software was USD 4.33 million. These cyberattacks include on the supply chain and the Internet of Things (IoT). 

Source: IBM Security

Along the same lines, mergers and acquisitions have high cloud security considerations. Suppose a company your business absorbs has encountered a data breach undisclosed to you. The following costly results can occur for your organization when the public learns of this revelation:

  • Disruption of workflow
  • Loss of business accounts
  • Devaluation of stocks if publicly traded
  • Regulatory and legal expenses to rectify the damage

In fact, all expenses combined could outweigh the entire cost of the merger or acquisition for your company.

How FAIR Methodology and Threat Intelligence Can Help with Data Breaches

You can assess the potential impacts of data breaches for your own organization through financial projections and probabilities. The process involves combining threat intelligence with the Factor Analysis of Information Risk (FAIR) model.

Use FAIR to quantify your organization’s security risk in financial terms. The methodology provides a review of cyber risk variables such as frequency of breach events, vulnerabilities and strength of security. Using this data, security experts in threat intelligence can assess the capability of the threat actors and their probability to attack your organization. Statistical analysis of these key variables allows you to identify gaps in current controls or processes that put your organization at risk for larger financial loss.

For example, the report notes a real-world engagement for a financial service institution seeking to address sensitive data breaches. Financial industry averages and learnings from previous client engagements served as inputs to run the statistical analysis. The activities uncovered the following assumptions:

  • Threat event frequency: two to four times per year
  • Vulnerability: 5 percent-15 percent
  • Response time: 50-150 manhours
  • Employee wages based on skill level needed to repair and restore: USD 75-150 per hour

Based on these figures, the following components composed the average financial loss for a data breach:

  • Largest primary form of loss: Response costs
  • Largest secondary form of loss: Lost business
  • Most severe event: USD 18.9 million
  • Probability of loss exceeding $1 million: 30 percent
  • Top annualized risk: USD 5.7 million

Results obviously vary by industry and geography, but this scenario shows typical discoveries found by many organization leaders who are unaware of how exposed they are to costly data breaches.

How Your Organization Can Address Specific Risks

Risk quantification promotes the concept of business executives and IT security officials working together to address data breach disruptions to their organizations. All parties focus their scarce resources to handle risks that can have the most disruptive impact of losses for the business.

These considerations mean risk quantification provides a more holistic view of ongoing security concerns than, say, an incident response plan. An incident response plan isn’t a cyber crisis management plan. While an incident response plan helps, your organization needs more assistance with constantly evolving security threats.

Your organization may lack the internal resources or personnel to tailor risk quantification for your specific needs. In that case, IBM Security can offer experts to provide you with the following services:

  • An assessment of your potentially disruptive business risks and quantifying in financial terms the potential business impact of the security risk scenarios that you face
  • Recommendations as to how to reduce those business risks with prioritized strategies and roadmaps
  • Assistance in managing those risks, with proactive insight and reporting on the ongoing status of the assessed risks

Review the Cost of a Data Breach report to learn more about how risk quantification can help your organization minimize the financial impacts of a data breach.

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Author: Julian Meyrick