Security Through an Economics Lens: A Guide for CISOs

Security and IT leaders are familiar with the challenge of making trade-off decisions about how and where to invest resources to best manage risks to the organization. Viewing their problems through the lens of economics may help them reprioritize these tricky investment decisions. 

Tom Scholtz, research vice president at Gartner, took a deep dive into this idea during a talk at Gartner's Security & Risk Management Summit, taking place online this week. Scholtz argued how concepts such as opportunity cost, core to the study of economics, can prove just as useful in cybersecurity, where it's often tough to determine whether resources are spent properly.

Security spending has remained constant over the past five years, Scholtz said, pointing to data from Gartner. Still, the range of investment varies broadly. At the low end, businesses spend as little as 1.7% of their IT budget on security; at the high end, that number reaches 12% or more.

"Almost 80% of security investment is still being done on the conventional hardware, software, and human resource aspects of the security capabilities, and only just over 20% of security investments goes toward security services," he explained, noting that Gartner expects spending on security services will grow as more organizations make the transition to cloud environments. 

According to Gartner, 82% of businesses will only change their investment portfolio when they update their budgets, whether that's on an annual or biannual basis. Only 18% change their investment priorities throughout the year based on major business changes, Scholtz explained.

"We all know that change doesn't sync up with our budget cycles, and we all know that our executives tend to make decisions based on changes in the business environment," he said. "We need to find ways of understanding how the business makes investment decisions and change decisions … so that we can react to that as effectively as possible when those changes occur."

Security investments are historically made based on risk management: protecting intellectual property, ensuring brand preservation, and checking the boxes on legal and regulatory mandates. There is a positive spin, Scholtz added: These investments are also geared toward building trust among stakeholders and customers, which helps an organization generate revenue. Investing effectively can drive value creation so the business can invest in newer and less mature tech.

And when security leaders are making investment decisions, technology is where they browse first. Nearly two-thirds (65%) of respondents to Gartner's study said their security programs and investments only focus on buying tech. Doing so can come at an opportunity cost, Scholtz warned.

"It sounds [like] we are investing in the areas that we are comfortable, in the technology investments, and not necessarily making the investments in some other areas where potentially we can help support more value and better returns to the organization," he explained.

Calculating Opportunity Cost
Every investment decision is a trade-off. In order to understand where resources are best spent, Scholtz advised first looking at major risk areas to the company. Security leaders must consider the risk to intellectual property, the operational risk, and the physical risk. Risk decisions should be made based on the context of a given application or project at any point in time, he added.

He gave an example: Say a business is thinking of investing in security for its research and development (R&D) department, and it has decided that IP risk is comparatively more important than operational or reputational risk. If officials spend more on mitigating operational risk and less on protecting data, the decision doesn't relate back to the organization's needs. There is an opportunity cost in spending more to mitigate a risk that isn't considered as important.

"There's the opportunity cost of spending too much money in a low-value area, and we can reduce the opportunity cost by investing in an area where we have high business value, but the risk is too high," he said.

For instance, say a company has an application, business process, or piece of infrastructure with low business value but strong security posture. It could be helpful to potentially cut investment in that piece of infrastructure and reallocate it toward an application or process with high value but poor risk posture.

Alternatively, security leaders may find themselves with an application or system that has low business value because the associated risk of using it is too high. As a result, the app or process isn't used properly because people are scared to use it – reducing its business value to near-zero. Scholtz suggested this could be an opportunity to take money from an environment with low value but strong risk posture and allocate it toward the low-value, high-risk situation.

"Invest effectively in improving the controls of that system, which will then enable that system to be rolled out into production and to be used a lot more effectively, hence increasing the business value we get out of that system," he explained.

This model allows businesses to assess where and how they make investment decisions that may not be optimal, and where the opportunity cost is too high, and reallocate their resources.