The CFO’s Five Hidden Cyber-Cost Centers (and How to Shrink Them)

As technology advances rapidly, modern CFOs face a new threat: increasing cybersecurity costs. While many of these costs are unavoidable, organizations can still optimize their cybersecurity expenditure by understanding hidden cost centers and managing them effectively.

Companies can reduce a significant portion of their cybersecurity costs while maintaining comprehensive coverage and protection against persistent and emerging threats. Below, we explore five hidden cyber-cost centers and strategies to make them more efficient.

1. Increased Insurance Premiums

An increase in the frequency and severity of cyberattacks has led to an overall rise in insurance premiums. Combined with inflation and an ever-expanding cyber insurance market, premiums continue to skyrocket.

When a ransomware attack occurs at a company, insurers may sharply increase premiums afterward in response to heightened exposure. Some insurers may even deny further coverage unless organizations meet stringent conditions, adding indirect costs to business operations.

Opting for reduced coverage can lead to further risk exposure, negatively impacting operations as companies must divert resources from other key departments into risk reduction and mitigation.

Mitigation Strategies

• Leverage a robust security record by using past low incident rates and investments in cybersecurity measures to negotiate lower premium rates with insurers.
• Adopt NIST, ISO 27001, and other recognized cybersecurity frameworks to demonstrate robust practices, which can reduce premiums.
• Provide regular cybersecurity training to IT staff to keep them current on data security trends, reducing risk exposure.

2. Operational Downtime

When a business sustains a denial-of-service (DoS) attack, the incident can shut down critical business systems, networks, and operations—particularly devastating for e-commerce or manufacturing companies.

Such incidents can adversely affect businesses in multiple ways. The AT&T outage in February 2024 serves as a prime example. Operational downtime affected millions of customers across the U.S., leading to over $375 million in customer refunds, reimbursements, and other losses.

The outage also caused a massive drop in employee productivity and morale. In other cases, operational downtime can lead to emergency staffing costs, disrupted supply chains, and delayed project timelines.

Mitigation Strategies

To reduce operational downtime:

• Create and regularly test a comprehensive incident response plan that detects, contains, eradicates, recovers, restores, and mitigates operational downtime.
• Implement strong firewalls, data encryption, and automated software patching to reduce cyberattack risk. Investing in patch management solutions prevents emergency labor costs.
• Establish redundant cloud-based failover systems that keep businesses operational during disruptions to reduce overall downtime.

3. Reputational Damage

Customers and investors often lose confidence in organizations when cyberattacks expose gaps in their ability to manage incidents effectively. Such security incidents can cause businesses to lose market value and customers while generating negative media coverage.

Additionally, tarnished reputations can lead to increased employee turnover, creating direct and indirect replacement costs. Investors, shareholders, suppliers, and other key partners may also withdraw their support, reducing ease of doing business. Organizations may also face lawsuits and regulatory fines that erode capital.

Mitigation Strategies

• Invest in a robust cybersecurity framework to prevent potential attacks and demonstrate commitment to security.
• Establish effective communication channels with customers and partners. During a breach, use a crisis communication plan to control the narrative and prevent reputational fallout.
• Keep investors, partners, and customers updated on cybersecurity measures to build and sustain credibility.

4. Value of Lost Intellectual Property

Some cyberattacks can lead to the loss of intellectual property (IP). For innovation-oriented businesses, cyber espionage can result in millions of dollars worth of research and development losses.

These attacks can also cause businesses to lose market share to competitors. In industries that reward first-to-market innovations, companies may incur losses to potential revenue and profits anticipated from technological breakthroughs.

Recovering lost IP also involves indirect costs associated with legal expenses incurred while pursuing perpetrators. Despite investing in quality legal representation, organizations may still lose cases and forfeit their IP.

Mitigation Strategies

• Assess the business for the most valuable IP susceptible to theft and prioritize protective actions. Use encryption, access controls, and monitoring systems to prevent internal espionage.
• Register patents, trademarks, and copyrights to establish clear IP ownership, which helps enforce ownership and recover damages from cyberattacks.
• Monitor competing products and technologies for unauthorized IP use, enabling timely intervention and rights enforcement.

5. Redundant Cybersecurity Spending

Another hidden cost involves using overlapping or duplicated cybersecurity tools. Internal security departments and compliance teams may use different tools that serve the same function, increasing subscription and maintenance costs.

This leads to technology sprawl, which increases spending without meaningfully reducing cybersecurity risks.

Mitigation Strategies

• Conduct an assessment of security tools and align expenditure with exposure. Use only tools that protect against threats specific to the sector and business.
• Audit and eliminate duplicate and non-essential security tools. Retain only solutions that provide maximum risk reduction at a commensurate price.

Additional Strategies to Optimize Cybersecurity Costs

Organizations can take further action to optimize spending while maintaining robust cybersecurity postures:

• Work closely with the Chief Information Security Officer (CISO) and align security investments with budgets to achieve the best cybersecurity coverage for the company’s risk profile.
• Provide clear and practical cybersecurity updates and mitigation strategies to investors to obtain board support and increase cybersecurity funding.
• Use robust cybersecurity postures as competitive advantages to increase market share and bolster company reputations in the market.