In the modern, interconnected world, no organization is immune from a cyber attack. Indeed, most experts agree that it is a matter of “when,” not “if” an organization will be targeted by threat actors. If an attack is successful, the immediate costs — including potential ransom payments, lost revenue, and costs associated with remediation and restoration — can be substantial.
However, the hidden costs of a cyber attack can extend far beyond the initial financial damage. These additional costs can damage an organization’s reputation and operations in ways that can have a much longer tail than the initial costs.
As organizations grapple with creating a comprehensive risk management strategy, it’s vital they understand these hidden costs so that they can determine the full potential fallout from a breach. Doing so can impact both the way an organization responds to a cyber attack, and the proactive protections it puts in place to prevent one.
The Total Average Cost of a Cyber Attack
To get a full understanding of the total potential damage that can come from a successful cyber attack, it’s best to start with the sticker shock. According to IBM, the average total cost of a data breach — including direct costs like losses, fines, or lawsuits, as well as indirect costs like reputational damage and increased insurance premiums — is $4.88 million USD.
This number has continued to climb year after year, averaging around a 10% increase annually, and it shows no sign of slowing. This is because, as organizations move to adopt the cloud and embrace hybrid work models, their attack surface expands. This means more emphasis is placed on identity-based security that enforces strong authentication controls over traditional on-premises protections like traditional firewalls responsible for securing the corporate network perimeter. Plus, our digital transformation has created an interconnected world where a successful attack on one organization can lead to an attack on another with which they do business.
As environments grow, organizations collaborate, and technology drives innovation, new paths to attack open for threat actors, increasing both the potential scope of a successful attack, and the potential damage one can create.
The Hidden Costs of Cyber Attacks
The hidden costs of cyber attacks extend well beyond the immediate burden of ransom payments or misdirected funds. Organizations often face significant, less visible repercussions, and understanding these hidden costs is crucial for organizations looking to develop robust, proactive cybersecurity strategies that can mitigate the full impact of a successful cyber attack.
1. Reputational Damage
One of the most damaging and long-lasting consequences of a cyber attack is the harm it causes to an organization’s reputation. In today’s digital world, news of a security breach can quickly go viral on social media, make headlines, and circulate within industry networks. This negative exposure can erode public trust and tarnish the organization’s brand and image.
Customers may lose faith in the company’s ability to safeguard their personal data, leading to a drop in customer loyalty and potentially significant business losses. Rebuilding that trust can take years and often requires a major investment in marketing and public relations, along with the costs of providing credit and identity monitoring services to affected customers.
In the long run, reputational damage can also hinder future opportunities and partnerships. For public companies, a cyber attack can have a drastic negative impact on share prices. Take Clorox, who were victims of a major attack in 2023. Post-breach, Clorox saw their stock hit a 52-week low, dropping 11% on the year. Organizations with a history of security breaches may struggle to attract new clients or secure contracts, particularly in industries such as legal, financial, and healthcare, where data protection is paramount.
2. Work Stoppage and Downtime
Cyber attacks can severely disrupt an organization’s daily operations. This disruption can manifest in various ways, from stalled production lines to delivery delays to inaccessibility for customers.
During a cyber attack, systems may be shut down or restricted — either by the threat actor or the incident response team tasked with stopping the attack. This downtime equals lost productivity, delayed projects, and missed deadlines, all of which have a direct financial impact on an organization.
Additionally, the time it takes to remediate, restore, and recover from a cyber attack is quite significant. While dropping to a seven-year low in 2023, the average time it takes a team to identify and contain a breach is still 258 days. And, while it’s good news that the time to recover is decreasing, the costs associated with this downtime increased by 11% in 2023, meaning it’s more expensive than ever to suffer work stoppage from a successful breach.
3. Regulatory Fines and Legal Fees
Organizations that experience a cyber attack may face significant legal and regulatory consequences, especially if they are found to be non-compliant with data protection laws relevant to their region or industry.
Data protection regulations, such as the California Consumer Privacy Act (CCPA) or the Health Insurance Portability and Accountability Act (HIPAA), are designed to safeguard the personally identifiable information (PII) and data of users. Depending on an organization’s operations, industry, or location, compliance could mean adhering to multiple frameworks and reporting to multiple governing bodies. In fact, 67% of organizations surveyed by Arctic Wolf follow between one to three sets of guidelines. Non-compliance with these regulations can result in substantial fines and penalties, which can add to the overall cost of a cyber attack.
As one example, violations of HIPAA are tied to four penalty tiers , with Tier 1 being the least severe and Tier 4 the most. Violations in Tier 1 can cost an organization anywhere from $100 to $50,000 per violation, while Tier 4 will cost an organization a minimum of $50,000 per violation.
Organizations may also face post-breach lawsuits from impacted customers, vendors, shareholders or third parties. The legal fees associated with defending the organization against these lawsuits can be considerable, and any settlements or damages awarded can send the full cost of a breach climbing even higher.
4. Intellectual Property Theft
The loss of proprietary technology, trade secrets, or digital assets can cause an organization to lose valuable competitive advantage in their industry, disrupt and delay R&D efforts, and lead to losses in market share and revenue. Additionally, there may be additional costs related to recovering or recreating the lost IP.
Government bodies, as well as industries like manufacturing and technology are particularly tempting targets for threat actors looking to steal intellectual property, with everyone from malicious insiders to nefarious nation-state actors looking for a way into an environment rich with IP. At the beginning of 2024, Arctic Wolf® Labs warned that nation-state actors would attempt to target manufacturers to obtain intellectual property (IP) and trade secrets. The Arctic Wolf 2024 Security Operations Report revealed that over a quarter of alerts were related to threats targeting organizations focused on manufacturing, fulfilling that prediction. The loss of this proprietary data can have long-lasting implications for the health of the breached organization.
5. Insurance Premiums
Post-breach, organizations with existing cyber insurance policies may face increased premiums or changes in coverage terms to reflect the increased risk now associated with their organization. Carriers may also make changes to the limitations and exclusions in the policy as a result of a claim stemming from a cyber attack, which can result in organizations needing to either seek additional coverage or purchase additional tools, technology, or solutions to address gaps.
For organizations without existing policies who are in the market for one post-breach, they can expect higher premiums and stricter compliance obligations than they might have found pre-incident. Obtaining a policy can be more challenging post-breach, as organizations must address gaps in their environment and prove a certain level of protection before a policy can be secured.
Discover how our Incident Response JumpStart Retainer can kickstart your response to cyber attack and shave days off your restoration, as well as potentially reduce insurance premiums.
How Organizational Size Impacts Total Cost of a Cyber Attack
As discussed earlier, the average cost of a data breach is $4.88 million USD. However, that is the median, and that number will increase or decrease relative to an organization’s size. This is due to two principal factors:
Data Volume
Larger organizations typically process, store, and transmit a greater volume of data than a small or mid-sized one. The more data an organization deals with, the more extensive and costly the potential damage from a cyber attack. Additionally, more data translates to more users effected by the breach, which leads to increased costs around breach communications, remediation and credit monitoring for those impacted.
Environmental Complexity
A small business with only a handful of in-office employees working from a single location is simpler to secure than a large, distributed attack surface encompassing multiple servers, networks, office spaces, endpoints, remote employees, IoT-enabled devices, and cloud environments. The greater the complexity, the greater the cost to remediate a cyber attack, and restore business operations.
Additionally, the costs mentioned above will also change depending on an organization’s size. Larger, international organizations face a greater compliance and regulatory burden than a small business operating from a single location, for example.
Learn how to calculate your cost of a breach and avoid cybersecurity sticker shock with this on-demand webinar.
How Organizations Can Protect Themselves
It’s clear that risky security practices can have costly consequences for organizations of every size. The goal of IT and security professionals is to keep these costs from ever occurring. But, faced with shrinking budgets and an ongoing, global staffing shortage, most organizations find it challenging to attract and retain enough security professionals to make this goal a reality.
In a modern threat landscape, the answer lies in taking both proactive and reactive measures that can reduce these potential costs by reducing and transferring organizational risk.
24×7 Monitoring, Detection, and Response
Modern managed detection and response (MDR) solutions provide 24×7 monitoring of your network, endpoint, identity, and cloud environments to help you detect, respond, and recover from modern cyber attacks faster. MDR provides protection for cloud workloads — in addition to ingesting telemetry from traditional security tools like firewalls and endpoints. Arctic Wolf® Managed Detection and Response is built on an open-XDR platform which processes five trillion events every week, enriching them with threat intelligence and risk context to drive faster threat detection and eliminate alert fatigue. Machine learning and artificial intelligence (AI) are paired with human security expertise to close gaps and eliminate blind spots.
Vulnerability Management
According to the Arctic Wolf 2024 Labs Threat Report, 25.6% of incidents investigated by Arctic Wolf® Incident Response exploited a known vulnerability. Proactive patch management and software updates can help to remediate existing vulnerabilities and prevent their exploitation. A robust vulnerability management program like Arctic Wolf® Managed Risk takes things even further, contextualizing your attack surface coverage across your environment to help you benchmark against configuration best practices and continually harden your security posture.
Incident Response
Focused on isolation, minimization, cost reduction, and business restoration, incident response is a major tool in cyber defenders’ toolkits, and an essential part of any robust cybersecurity architecture. The goal of IR is to both prevent incidents from occurring or becoming data breaches and minimizing the impact an incident has on an organization.
Arctic Wolf® Incident Response leverages an insurance-approved incident response team, who provide the full suite of services you need to recover from a cyber attack and get back to business as fast as possible. Our IR team will remove the threat actor from your environment, negotiate with threat actors, determine the root cause and extent of the attack, and restore critical systems to a pre-incident state.
See how prepared your organization is for an incident with the Arctic Wolf Cyber Resilience Assessment.
