How to Avoid The Financial Impact of Data Breaches

David West 05-Sep-2023 08:15:00
A male business consultant describes a marketing plan to set business strategies for women business owners with using calculator.

In today’s interconnected world, organisations must ensure cybersecurity for themselves and their third-party vendors. With increasingly complex risk management scenarios, the impact of a data breach can be catastrophic for an entire supply chain.

The latest IBM Data Breach Report revealed that 83% of organisations experienced more than one data breach during 2022.

It’s worth noting that while internal vulnerabilities can undoubtedly contribute to breaches, external factors are also at play. In fact, an alarming 51% of security breaches in 2022 stemmed from data breaches caused by third parties.

The true cost of a data breach extends beyond financial losses. This blog delves into the broader impact of cybersecurity incidents.

Understanding the Costs of a Cyber Security Breach

According to IBM, the average data breach cost in the UK in 2020 was £2.76 million. This was up 10% over the previous five years, showing a continued upward trend. The costs incurred by a breach can take many forms. Let’s review each of them: 

Cost of Downtime

A data breach can quickly bring your organisation to a halt. All efforts switch to containing the breach and recovering from the attack. During this time, the business will rack up many expenses.

The most common associates include the following:

  • Lost productivity: If a solution isn’t reached, employees may be unable to carry out their daily activities.
  • Lost revenue: If your staff can’t work, your revenue will suffer.

Work out the cost of downtime for  your business with our calculator

Potential Legal Fees and Compensation

Legal fees are not uncommon following data breaches. Organisations may be required to pay fees if customers demand compensation for losing personal data.

Penalties for Non-Compliance With Regulations

Another cost is penalties for non-compliance with regulations like the General Data Protection Regulation. The GDPR is the legal framework that sets guidelines for collecting and processing personal information from individuals. The UK’s data protection laws, the GDPR and the Data Protection Act 2018, state that a maximum fine of £1.75 million or 4% of your company’s annual global turnover (whichever is greater) can be imposed.

British Airways was fined £20 million for a data breach that affected 400,000 staff and customers due to inadequate security measures.

Reputational Damage

A damaged reputation can severely harm your organisation’s image and long-term profitability. Losing customer and investor trust leads to increased costs and decreased sales. For example, in 2016, TalkTalk lost over 100,000 customers after a cyber-attack, along with a third of its company value.

Small businesses can suffer irreparable damage from data breaches, which is a significant cause of their high failure rate. While large organisations may incur higher total costs, existential failure is less likely.

Breach Investigation Efforts

An investigation is crucial after a breach to determine the cause and prevent future incidents. The investigation will go through multiple stages, including gathering evidence by collecting breach reports.

This process can be expensive and lead to reduced productivity within your organisation. Additionally, hiring a cyber-forensic investigation firm may result in significant costs.

Why do the costs fluctuate?

It’s challenging to provide an exact financial value for a data breach because of the uniqueness of each business. A data loss can be more or less costly depending on the value of the data, how it is used, and the level of protection.

Ultimately, the cost of data loss can be broken down based on several factors:

  • Organisation size.
  • Amount of data lost.
  • Value of data lost.
  • Impact of the breach on business operations.
  • Recoverability of the data.
  • Length of downtime.
  • Speed of recovery/ containment/ incident response.

Why is the Cost of Cyber Attacks Increasing?

Recent projections show an anticipated annual increase of 15% in cybersecurity breaches over the next five years. By 2025, these costs are predicted to reach £10.5 trillion annually, exceeding the combined cost of natural disasters and illegal drug trade.

Cyber attacks are becoming increasingly expensive to manage as hackers take advantage of technological advancements to carry out malicious activities. For example, ChatGPT can be exploited by hackers to create Malware for attacking company systems.

New technology requires more complex and expensive security solutions to combat sophisticated attacks. So, you could say that technology is becoming a double-edged sword!

What are the top causes of data breaches?

Minimising the risk of a data breach is crucial to reduce the potential damage and financial impact. 

Common causes of data breaches that you need to understand include the following:

Unauthorised use

Employees may misuse confidential information by copying or sharing it. But this isn’t always malicious — sometimes, an employee may stumble upon sensitive information if information security is weak.

Malware

Malware can give hackers back-door access to your computer network and data.

Social engineering

Cybercriminals can use social engineering to deceive people into giving them access to information. This includes phishing and other types of cyber-attacks.

Human error

One of the most common causes of breaches is sending sensitive information to the wrong person by mistake. Likewise, a misconfigured database can allow unrestricted access to sensitive information.

Criminal hacking

Hackers are increasingly active, spreading malicious code, stealing passwords, and selling or misusing stolen data.

Third-party vendors

Working with third-party vendors is unavoidable but can pose many risks to your business. Third-party breaches are the most common due to unpatched security vulnerabilities, human error and Malware.

An effective and proactive cybersecurity solution minimises the probability and potential costs of a data breach. While it’s impossible to eliminate security risks completely, taking measures to secure your system can help reduce the likelihood of a breach.

Steps to Prevent Data Breaches

To prevent cyber-attacks and data breaches, businesses must implement the following best practices for robust and resilient cyber security defence.

Backup Data

Data loss can lead to harrowing costs for a business. To minimise the impact of a data breach, organisations must ensure they have a backup of all their data in case it is lost or destroyed.

Alongside working backups, you need a disaster recovery plan. A strong incident response plan is key to quickly and effectively handling incidents.

Prepare for the worst with our Backup and Disaster Recovery Checklist!

Create Strong Passwords

Weak passwords account for 81% of company breaches. Hence, organisations should motivate employees to use strong passwords and prevent stolen or compromised credentials.

Conduct Cyber Security Awareness Training

Employees are the first line of defence against a cyber attack. But often, they are also the weakest link. Companies must foster a cyber-aware company culture by training employees in security awareness to keep them informed, vigilant, and educated on cyber threats and prevention.

Implement Multifactor Authentication

Multifactor authentication requires multiple forms of identification to log into platforms or accounts. This security strategy can significantly reduce data breaches and make it more difficult for hackers to access a company’s network.

Implement Security Measures

Organisations should make it difficult for attackers to access their company systems, platforms, and data. You can do this through a variety of proven and tested security measures, including, but not limited to:

  • Firewalls.
  • Intrusion detection systems.
  • Encryption.

Install an antivirus software

Cyber attacks don’t always happen in an instant. Sometimes, a tiny malware can be hidden away in an IT infrastructure, only to wreak havoc later. Having secure and reliable antivirus software can prevent infections like these and identify potential threats before they occur.

Install a firewall

Firewalls block unauthorised network access, ensuring only authorised personnel can enter company systems.

Develop a long-term Cybersecurity Strategy

Adopt a long-term cybersecurity strategy over a short-term reactive approach. Investing in cyber risk management upfront may impact revenue-generating resources, but it pays off in the long run. Integrated IT security processes can reduce almost 38% of data breaches.

Samsung breach caused by employees submitting top-secret source code to ChatGPT. It is not a technical weakness but a cultural and operational issue. A robust cybersecurity culture can prevent unintentional cyber incidents while embracing digital innovations like ChatGPT.

Cyberattacks can have severe long-term consequences, such as losing competitive advantage, lower credit rating, and higher insurance premiums. Businesses need a board-level cybersecurity champion to develop a strong and sustainable cybersecurity strategy.

The Impact of Ignoring Cybersecurity Threats

Cyber threats are not a matter of if but when they will strike. Every company, big or small, is vulnerable to these attacks. A single mistake, outdated software or unsafe online practices can lead to a data breach.

Managing IT and security alone can be tricky; you might consider outsourcing to help manage the load. However, identifying a responsible IT partner is easier said than done.

IT companies make attractive targets for cybercriminals. It is risky for a company to advise on compliance, security, and business continuity without considering its own.

14 questions to ask your next IT partner

At Netitude, we not only practice what we preach but also offer the most comprehensive security and support stack available in the market. Our service covers everything your business needs to operate in today's cyber risk environment, from mitigation to detection and response.

To ensure your business's security and peace of mind, explore our Managed offerings or schedule a no-obligation call with our experts.