The $670,000 Shadow

Why your organization's unseen AI is costing you more than you think

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Additional cost per breach with organizations with higher Shadow AI usage - IBM Cost of a Data Breach 2025 Report

The boardroom conversations I'm having lately frequently start off with: "We have strong AI governance in place." My follow up question is: "How many AI tools are your employees actually using?". The silence that follows is profound and tells not only me but the Board everything we need to know.

The Shadow AI Crisis Has Arrived

Shadow AI - unauthorized AI tools deployed by employees without oversight - isn't a future threat. It's here, and the numbers are staggering. According to IBM's 2025 Cost of a Data Breach Report, one in five organizations experienced a security breach due to shadow AI incidents. These breaches cost an average of USD 670,000 more than incidents involving low or no shadow AI usage.

But here's what should really concern C-suite leaders: 63% of breached organizations either lack AI governance policies or are still developing them. Even more alarming, among those with policies in place, only 34% perform regular audits to detect unsanctioned AI use.

Why Shadow AI is Different - And More Dangerous

Traditional shadow IT posed challenges, but shadow AI introduces an entirely new dimension of risk. When an employee uploads sensitive customer data to an unauthorized AI tool to "just quickly analyze" something or craft a better email, they are not just violating policy - they are potentially exposing intellectual property, personally identifiable information (PII), and trade secrets to systems you don't control, audit or even know exist.

The data reveals the scale of the exposure:

• 65% of shadow AI incidents compromised customer PII (vs. 53% global average)

• 40% involved intellectual property theft

• These incidents resulted in data being exposed across multiple environments creating widespread vulnerability from a single unmonitored tool.

Key insight: Organizations using extensive AI security solutions saved an average of USD1.9 million in breach costs and reduced detection time by 80 days.

Shadow AI Raises the Stakes

The regional imperative: UAE and Saudi Arabia

For organizations operating in the UAE and Saudi Arabia, shadow AI carries additional regulatory weight. The UAE's National Strategy for Artificial Intelligence 2031 sets out eight strategic objectives aimed at establishing the UAE as a global AI leader by 2031. These objectives include:

1. building the UAE's reputation as an AI destination

2. increasing competitive assets through AI deployment in priority sectors

3. developing a fertile AI ecosystem

4. adopting AI across government services

5. attracting and training talent

6. bringing world-leading research capability

7. providing essential data infrastructure

8. ensuring strong governance and effective regulation.

This eighth objective - governance and regulation - directly addresses the shadow AI challenge. The establishment of the Artificial Intelligence and Advanced Technology Council (AIATC) in Abu Dhabi provides regulatory oversight specifically for AI projects. The UAE's AI Charter, developed as part of this strategy, outlines 12 guiding principles emphasizing governance, transparency and accountability. The UAE's Personal Data Protection Law applies strict protocols for data processing - including AI-driven processing - with significant financial penalties for violations.

Similarly, Saudi Arabia's Personal Data Protection Law (PDPL), now fully enforceable since September 14 2024, and overseen by Saudi Data and AI Authority (SDAIA) requires comprehensive governance over all data processing activities. With the AI Adoption Framework, published in 2024, and AI Ethics Principles, established in 2023, Saudi Arabia has made it clear that organizations must maintain visibility and control over AI deployments.

The Challenge? Shadow AI Makes Compliance Impossible.

How can you maintain records of processing activities when you don't know which AI systems are accessing or controlling your data?

How can you honor data subject rights when unauthorized AI tools have scattered information across platforms you've never audited?

What Board Members Need to Ask

As a CISO, CIO, CFO, CEO or board member (actually anyone in the business!), here are the questions you should be asking this week:

1. Do we have complete visibility? Can you produce a comprehensive inventory of every AI tool in use across your organization? If not, you are flying blind.

2. What's our governance maturity? Having a policy document isn't enough. Are approval processes enforced? Are access controls implemented? Is there regular monitoring?

3. Are we treating AI as a security priority? Organizations using extensive AI security solutions saved an average of USD1.9 million in breach costs and reduced detection time by 80 days. Are you investing proportionately to the risk?

4. What's our incident response plan? When - not if - a shadow AI incident occurs, can your team detect it, contain it, and respond effectively?

The Path Forward

Addressing shadow AI requires a multi-layered approach:

• Implement Discovery and Monitoring: deploy tools that can identify usage across your network. Security teams that actively monitor for shadow AI are detecting these incidents at a higher rate than overall breach discovery rates.

• Establish Clear Governance: create explicit AI adoption policies with approval workflows. Make it easier to use sanctioned AI than to go rogue. When legitimate AI tools are readily available and simple to access, employees have less incentive to work around the system.

• Enable, Don't Just Restrict: the goal isn't to ban AI - that's neither realistic nor strategic. Instead, provide approved AI tools that meet business needs while maintaining security controls. This is about channelling innovation, not stifling it. Know AI, rather than NO AI.

• Integrate Security and Compliance: ensure your CISO, CRO, and CCO collaborate regularly. Shadow AI isn't just a security issue - its a compliance, privacy and business risk that requires cross-functional coordination.

• Build an AI-Literate Culture: your employees aren't using shadow AI to be malicious - they are trying to work more effectively. Education about approved tools, data handling requirements and the risks of unsanctioned AI is critical.

The Bottom Line

The USD670,000 additional cost per shadow AI breach as described in the IBM Cost of a Data Breach Report 2025 is just the beginning. Add in regulatory fines - 32% of breached organizations paid penalties, with 48% exceeding USD100,000 - reputational damage, customer trust erosion, and competitive advantage loss from IP theft, and the true cost becomes existential.

Regulatory frameworks, no matter your jurisdiction, are evolving rapidly and potential penalties could become substantial, therefore the risk is amplified. The question isn't whether your organization will adopt AI - it's whether you'll do so with visibility, control and accountability.

The shadow AI crisis is happening now. The organizations that emerge stronger will be those who acted while they still had time to get ahead of it.

What steps is your organization taking to address shadow AI? Feel free to reach out to me for a confidential discussion on how we can help you bring your shadow AI into the light.