The security firm has worked with the Center for Strategic and International Studies (CSIS), an international policy institution for defense and security, to build an economic model and methodology to accurately estimate these losses, which can be extended worldwide. In its initial report, the firm posits a $100 billion annual loss to the US economy and as many as 508,000 US jobs lost as a result of malicious cyber activity.
To help measure the real loss from cyber attacks, CSIS enlisted economists, intellectual property experts and security researchers to develop the report. The researchers used real-world analogies like figures for car crashes, piracy, pilferage, crime and drugs to build out the model. CSIS noted the difficulty of relying on methods such as surveys because companies that reveal their cyber losses often cannot estimate what has been taken, intellectual property losses are difficult to quantify and the self-selection process of surveys can distort the results.
“We believe the CSIS report is the first to use actual economic modeling to build out the figures for the losses attributable to malicious cyber activity,” said Mike Fey, executive vice president and CTO at McAfee, in a statement. “Other estimates have been bandied about for years, but no one has put any rigor behind the effort. As policymakers, business leaders and others struggle to get their arms around why cyber security matters, they need solid information on which to base their actions.”
The cost of malicious cyber activity involves more than the loss of financial assets or intellectual property, of course. There are opportunity costs, damage to brand and reputation, consumer losses from fraud, the opportunity costs of service disruptions, “cleaning up” after cyber incidents and the cost of increased spending on cybersecurity. For purposes of the research, CSIS classified malicious cyber activity into six areas: the loss of intellectual property; cybercrime; the loss of sensitive business information, including possible stock market manipulation; opportunity costs, including service disruptions and reduced trust for online activities; the additional cost of securing networks, insurance and recovery from cyberattacks; and reputational damage to the hacked company.
“This report also connects malicious cyber activity with job loss,” said James Lewis, director and senior fellow for the Technology and Public Policy Program at CSIS, and a co-author of the report. “Using figures from the Commerce Department on the ratio of exports to U.S. jobs, we arrived at a high-end estimate of 508,000 USjobs potentially lost from cyber-espionage. As with other estimates in the report, however, the raw numbers might tell just part of the story. The effect of the net loss of jobs could be small, but if a good portion of these jobs were high-end manufacturing jobs that moved overseas because of intellectual property losses, the effect could be wide ranging.”
Lewis and co-author Stewart Baker of Steptoe & Johnson LLP, distinguished visiting fellow at the CSIS, pointed out that as thoroughly as they plan to develop their estimates, the dollar amount might not fully reflect all the damaging effects that cyber espionage and cybercrime have on the global economy. CSIS is thus undertaking a second report to help better understand the true cost of cybercrime. Already underway, it will look at the ramifications of cybersecurity losses on the pace of innovation, the flow of trade and the social costs associated with crime and job loss. Lewis and Baker say the larger effect may be more important than any actual number, and it will be the focus of the next report.