5 Critical Cyber Risks that Can Threaten Business Profits

In today’s interconnected world, business leaders must confront the pervasive and detrimental risk of cyberattacks and data breaches. Yet the consequences of cyber incidents extend beyond compromising sensitive information — they can severely impact a company’s profitability.

In this article, I will discuss how cyber risks can cost profits and the importance of implementing robust cybersecurity measures.

My experience stems from conversations I’ve had with C-Suite members. I’ve worked on cyber defense/resiliency, overseeing cyberattacks like data breaches. I’ve seen how executives are not just frustrated by how much time, resources, and money a data breach can cost them but surprised. After the incident, they need to do remediation, restoration, notification, and, in some cases, provide services to affected parties, like credit monitoring. These unexpected measures tend to have high costs, threatening business profits. How can you understand the depth of the issue and get ahead of it?

 Let’s unpack it.

01. Financial loss: Direct and indirect costs

Cyberattacks can lead to significant business financial losses. According to IBM, in 2023, the average impact of a data breach was $4.45 million, a number that’s increased 15% over the past three years. What makes up these fees? Think about cyberattacks as having direct and indirect costs. Direct costs can include expenses related to the following:

• Incident response

• Forensic investigations

• Legal fees

• Regulatory fines

These costs can quickly escalate, especially if the breach involves customer data, leading to potential lawsuits and settlements. Meanwhile, indirect costs can be harder to measure but can potentially lead to declining sales and revenue financial setbacks, as your business may face:

• Reputational damage 

• Loss of customer trust

• Lost productivity

• Lost market value

Consider that the stock value of public companies has been found to suffer a 7.5% decrease in the wake of a data breach. Then consider the cascading effect — customers may pivot to your competitors — and calculate the revenue impact of potentially losing these customers forever. Eventually, your shareholders will ask: Why didn’t you mitigate risk? 

02. Operational disruption: The disastrous effects of downtime

Imagine if, one day, your company stopped operations for reasons out of your control, and you couldn’t operate for two weeks. One effect of a successful cyberattack is that it disrupts business operations, causing downtime and productivity losses. Depending on the nature of the attack, you may experience increased pain. Ransomware attacks, which recently reached record levels, have been shown to cost businesses over two weeks of downtime. 

How and why are they so destructive? For one reason, ransomware attacks can encrypt critical data and render systems inoperable until a ransom is paid or data is recovered. This can lead to halted production, delayed deliveries, and missed business opportunities. The longer the downtime, the higher the financial impact, as your company may lose customers, contracts, and market share to competitors. I encourage executives to counter this possibility by developing an incident response, business continuity, and disaster recovery plan. If you’re considering whether it’s worth it, ask yourself: Can we pay our employees if operations are down?

03. Intellectual property theft: A threat to your business future

Intellectual property (IP) is the lifeblood of many businesses, representing their competitive advantage and innovation. Cyber bad actors often target valuable IP, trade secrets, and proprietary information. When stolen, these assets can be sold on the dark web or used by competitors to gain an unfair advantage — one reason why working with cybersecurity professionals who understand the dark web can help you get ahead of cyberattacks in the first place.

Losing IP can undermine a company’s ability to generate profits, continue research and development (R&D) efforts, and maintain market position. In this sense, IP is critical for innovating with cutting-edge technology. Think about your R&D teams working tirelessly to catapult your business within your industry, only to lose their work to a competitor or — as can be the case with stolen IP from cyberattacks — a foreign adversary.

IP theft is most accurately quantified when calculating indirect and deferred costs. In a Deloitte study of a fictitious company, analysts found that such losses were likely to come from the value of the stolen IP itself, as well as operational disruptions, lost contracts, devaluation of trade name, and higher insurance premiums. Ultimately, they estimate that, over time, a $40 billion IT company will suffer costs greater than $3.2 billion from a single IP cyber theft.

04. Supply chain disruptions: Increased cyber risks in the digital world 

In the interconnected digital world, supply chains can increase cybersecurity risk. Modern businesses rely on complex supply chains encompassing multiple vendors, partners, and subcontractors. A cyber breach in any part of the supply chain can have far-reaching consequences, creating a ripple effect that can be extremely difficult to diagnose, stop, and remedy. 

Cyber Attackers can infiltrate a supplier’s network and use it as a gateway to access the primary target’s systems. As a business, you don’t necessarily have control over your suppliers’ cybersecurity measures, which means that incidents that disrupt their production and distribution networks disrupt yours, too, despite your best efforts. Supply chain disruptions are likely to lead to delays in shipping, which can increase costs in direct and indirect ways, for instance, by compelling you to spend more on immediate replacements and then confront potentially dissatisfied customers. 

The effects of supply chain disruptions can severely impact business profitability. A study from the Economist found that companies incur average financial costs of 6-10% of annual revenues when dealing with supply chain disruptions. Depending on your industry and products, there can also be a cost in lives — pharmaceuticals, medical devices, agriculture, and consumer food all use extremely complex supply chains where human needs are at stake.

05. Regulatory compliance and legal consequences: A rapidly evolving risk

Data protection and privacy regulations have become more stringent worldwide, while governance, risk, and compliance (GRC) have become an increasingly standard framework for managing uncertainty. Companies face stiff fines, penalties, and legal actions for non-compliance regarding data breaches. As of July 2023, corporations must disclose a cybersecurity incident to the United States Securities and Exchange Commission (SEC) within four days. Since 2018, organizations operating in the European Union (EU) have been subjected to the General Data Protection Regulation (GDPR), which imposes fines of up to 4% of a company’s annual global turnover for noncompliance. The financial burden of legal battles, settlements, and regulatory fines can significantly erode profits, affecting a company’s financial stability and growth potential. Organizations risk losing their most important asset, cybersecurity and IT talent.

Conclusion

Cybersecurity is a cat-and-mouse game, and for that reason, cyber risks will never end. In this ever-evolving threat landscape, businesses must face the clear and present danger and make the connection between risks today and potentially devastating consequences for profitability tomorrow. The costs of cyber incidents encompass financial losses, operational disruption, intellectual property theft, supply chain disruptions, and regulatory compliance and legal consequences. It is incumbent upon those in the C-Suite to ensure their business safeguards profits, protects their reputation, and maintains the trust of their stakeholders, partners, and consumers by properly assessing — and lessening — cyber risks.

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Cyber 101 | The Solopreneur | SMB | BoD