The Financial Implications of CMMC Compliance

Companies in the defense industrial base (DIB) need to understand the factors affecting the cost of compliance with CMMC but it is also important to understand the costs of noncompliance as well so before delving into the costs of compliance, let’s take a minute to consider the costs of noncompliance. CMMC was introduced as a result of companies in the DIB not realizing the forcefulness with which they are currently under attack. The most frequently discussed attacks like ransomware, DDoS, malware downloads and phishing attacks are all forms of cyberattacks that create obvious disruptions to day-to-day operations, thus alerting victims to the fact that they are under attack.  

However, attacks on DIB companies are most frequently designed to access and copy data files, read emails, track contract data, collect key contacts and otherwise conduct reconnaissance and espionage without detection. Accordingly, without effective security controls and alert mechanisms in place, companies may operate without knowing they have been infiltrated for years.  

In 2022, DCMA released a report that detailed how electronics, explosives, aerospace, software and other manufacturing companies are most commonly targeted by various regions of the world, including an overview of common techniques used for different attacks. The report also included vignettes to illustrate how those attacks went undetected by the target organizations. Further, it has become clear that the smallest companies in the defense supply chain are the biggest targets. This is because the attackers expect the smallest companies to have the least robust security measures, so they often start there with the intent of using that foothold to hop into another larger company, and there are numerous accounts of such strategies being effective in breaching multiple targets.

The nature of the kinds of cyberattacks designed to spy on network data without detection most common in the DIB underscore the criticality of putting preventative measures in place. The costs of noncompliance include having your intellectual property stolen as well as risking the competitive edge of our national defense. Bonus: DIB companies are also vulnerable to all the disruptive types of cyber attacks mentioned above, not just recon attacks, underscoring the value of investing in a solid cybersecurity program. Finally, the average losses from an attack dwarf the average investments in preventative measures, so compliance with CMMC should be embraced as a critical step in protecting your organization rather than simply being viewed as a necessary evil.

Costs of CMMC Compliance

Now that we have covered the ‘whys’ of complying with CMMC, let’s break down the categories of investments that should be made. Keep in mind that the complexity of CMMC compliance can vary significantly based on the organization’s size, organizational complexity, industry, and existing cybersecurity infrastructure. 

Soft Costs Associated with Preparing for the Certification Assessment

Preparing for a CMMC assessment involves soft costs, including the time and effort invested in developing and implementing more efficient and effective workflows around CUI, efforts to consider and reduce the number of personnel accessing government data, and time writing or revising cybersecurity policies and procedures. 

The amount of time required to effectively conduct risk assessments, create and updating policies and other documentation, and ensure operational alignment with CMMC requirements is frequently underestimated. In particular, we find that companies underestimate the time required to adequately document their policies and procedures. 

Remember that an assessor will be looking for documentation against all 320 control objectives, not just the 110 controls. It is true that some evidence may be obtained through interviews and observation, but companies are well served to document everything that they can in advance for two reasons. First, it allows you to consider how best to demonstrate compliance rather than deciding on the fly during an assessment and second, the act of documenting controls very often reveals the reality that the controls themselves are inadequate and need to be revised to ensure compliance. Companies with constrained IT and security management resources may also benefit from investing in advisory help from CMMC experts to support their journey to compliance.

Hard Costs Associated with Preparing for the Certification Assessment

Hard costs related to assessment preparation involve direct financial expenditures. This includes investing in cybersecurity technologies, tools, and software to meet the CMMC requirements. These upfront expenses contribute to building a robust cybersecurity infrastructure necessary for compliance. Common investments include but are not limited to FIPS validated encryption methods, effective managed security services from third parties that are compliant, compliant tools for managing access privileges, compliant tools for managing access to cloud resources, and compliant tools for protecting sources of sensitive information.

Hard Costs Associated with the Certification Assessment Process

Once prepared, organizations must undergo the formal CMMC certification assessment. This involves direct costs associated with hiring a certified third-party assessor (C3PAO), dedicating employee resources to participate in the assessment and where applicable, addressing any identified deficiencies. Again, the assessment process’s financial implications depend on the organization’s size, complexity, and the CMMC level sought.

Additional Costs to Consider

Regulatory Landscape Changes

The regulatory landscape in cybersecurity is dynamic, with changes occurring regularly. Organizations must anticipate potential shifts in CMMC requirements, which could result in additional compliance costs. For example, the current version of CMMC is based on NIST 800-171r2 but NIST 800-171r3 has already been announced and CMMC will eventually be updated to include those additional requirements. Budgeting for these potential changes ensures that organizations remain compliant and avoid unexpected financial burdens.

Strategic Resource Allocation

Organizations need to strategically allocate resources for CMMC compliance. This includes not only financial resources but also skilled personnel who understand the nuances of the CMMC framework. One of the most common mistakes we see in preparations is not having an internal resource knowledgeable in cybersecurity as the point person for managing the CMMC compliance journey. The head of your GRC program should know more than project management or how to interpret contracts – they need to understand what the cyber compliance requirements are and how to ensure that they are effectively implemented.

Investing in training for internal cybersecurity teams or hiring experienced professionals can enhance efficiency and reduce the overall cost of compliance. A well-prepared internal team can also streamline the assessment process, potentially minimizing overall assessment costs.

Cybersecurity Insurance

Organizations may explore cybersecurity insurance as a risk mitigation strategy. However, the cost of premiums and coverage may be influenced by the organization’s level of CMMC compliance. Some insurance carriers are considering a review of NIST 800-171 compliance as a step toward assessing risk associated with companies in the DIB. 

A comprehensive CMMC compliance strategy can potentially reduce cybersecurity insurance costs, and lead to more favorable terms and conditions. This intersection between compliance and insurance is an aspect organization should consider when assessing the financial implications of CMMC.

Vendor and Supply Chain Considerations

Organizations within the defense industry often have extensive vendor and supply chain networks. CMMC compliance requirements extend beyond the organization itself, encompassing the broader ecosystem.

Assessing and ensuring the compliance of vendors and partners may incur additional costs. Collaborative efforts to achieve compliance throughout the supply chain are essential for overall risk reduction and regulatory adherence.

Demonstrating Return on Investment (ROI)

Effectively communicating the ROI of CMMC compliance is vital for organizational stakeholders. This involves quantifying the value of enhanced cybersecurity resilience, reduced risk exposure, and the potential for securing lucrative defense contracts. 

Establishing a clear connection between compliance efforts and long-term business benefits can help organizations justify the initial and ongoing costs associated with CMMC.

Employee Training

Ensuring that employees are well-versed in cybersecurity practices is integral to CMMC compliance. Training programs and workshops come with associated costs, including materials, instructors, and potential productivity losses during training periods. Investing in employee education is a proactive measure for maintaining a strong security posture.

Ongoing Maintenance

CMMC compliance is not a one-time effort; it requires ongoing maintenance to adapt to evolving threats and regulations. Regular updates, patches, and monitoring tools contribute to the continuous effectiveness of cybersecurity measures. Organizations should budget for ongoing maintenance costs to sustain compliance over time.

Staying CMMC Compliant

Understanding and budgeting for the financial implications of CMMC compliance are critical for organizations aiming to secure defense contracts. While compliance entails various costs, the investment is not only a regulatory necessity but also a strategic move to enhance overall cybersecurity resilience.  Regardless of where you are in your CMMC compliance journey, Coalfire Federal can help.