Shadow IT: Too costly to ignore

Beyond the security risks that Shadow IT introduces into an Organisation, the (often hidden) costs have a direct impact on the bottom line performance of every department and consequently the business as a whole in both the immediate and longer terms.

From simple duplicated subscriptions, to complex fines for compliance breaches, the true costs associated with Shadow IT are stark and concerning (doubly so with the current volatility in the broader economy).  All is not lost, however, there are always tell-tale signs that you have a shadow IT issue - these are explored below.

Key Cost Areas where Shadow IT Lurks

Shadow IT isn’t just a security headache—it’s a financial black hole. Below are the 5 most common cost areas and simple, time tested strategies that we use as a core component of our internal management activities:

1. Redundant Software Subscriptions
   Without a centralised "asset list" (and associated governance) that includes software subscriptions, it is very easy business departments to unknowingly pay for overlapping tools - marketing might use Trello, while Building Maintenance prefer Monday.com - wasting funds on duplicate licensing and increasing the data footprint and security attack surface for all users.
   
   We recently came across a Sydney logistics company with 8 zoom subscriptions and 4 webex licenses in addition to all staff having access to Microsoft Teams through their Microsoft 365 Business Premium licenses - the cost savings through removal of the Shadow IT licenses was $15k pa without considering the improved security position!
   
   Identifying duplicate tools is not a simple task - in the above situation, the duplicate tools were identified through firewall logs with some forensic accounting thrown in to identify where the expenses were going. Without the luxury of a firewall with excellent application detection capabilities, this situation would have been way down the list of detection priorities.
   
   
2. Unbudgeted SaaS Expenditure
   Speaking of forensic accounting, lets move onto unbudgeted SaaS expenditure - often, employees with direct access to expense accounts will do just that - expense the latest cloud based application to try it out, keep up with another department or use a favoured system over the corporate standard.
   
   As with (1), identification of such issues will require careful review/reconciliation of expense accounts, ideally coupled with real-time application detection and reporting capabilities from either a network firewall, or device application policies.
   
   Product suites such as Microsoft 365 Business Premium include tools such as Intune and Defender for Cloud Apps that provide the tools necessary to simplify the detection and management of rogue SaaS applications.
   
   
3. Operational Inefficiencies
   Without integrated workflows and standardised processes, Shadow IT creates data silos that fragment business operations. When the marketing team uses Slack for internal communications while customer service relies on Microsoft Teams, and project management bounces between Trello, Asana, and Monday.com across different departments, the result is a fragmented ecosystem where information doesn't flow freely.
   
   We recently worked with a regional aged care provider where nursing staff were using WhatsApp groups for shift coordination, while administration used Microsoft Teams, and maintenance requests were managed through a separate unauthorised app. The result? Missed communications, duplicated efforts, and a massive increase in administrative overhead as staff spent valuable time manually transferring information between systems.
   
   The productivity drain extends beyond just communication gaps. When employees need to juggle multiple platforms that don't integrate, they waste significant time on manual data entry, file conversions, and reconciling conflicting information. A Perth professional services firm discovered their consultants were spending an average of 8 hours per week managing data across five different unauthorised project management tools – time that could have been billable to clients
   
   
4. Increased Support Costs
   Shadow IT creates a support nightmare for IT departments who find themselves troubleshooting systems they didn't approve, don't understand, and can't properly maintain. When employees encounter issues with unauthorised tools, they still expect IT support – but without proper documentation, licensing agreements, or vendor relationships, resolving these issues becomes exponentially more expensive.
   
   A Brisbane healthcare practice recently faced this exact scenario when their reception staff adopted an unauthorised patient scheduling app. When the app experienced connectivity issues, their IT (thankfully not us!) spent 15 hours troubleshooting a system they had no training on, ultimately requiring expensive external consultants to resolve compatibility issues with their existing practice management software. The total cost? $8,500 for what should have been a routine support ticket.
   
   The hidden cost multiplier here is the opportunity cost – while IT staff are firefighting Shadow IT issues, they're not focusing on strategic initiatives, security improvements, or supporting approved business-critical systems. This reactive support model can increase IT operational costs by 25-35% according to recent industry studies.
   
   
5. Remediation Costs
   When Shadow IT goes wrong – and it inevitably does – the remediation costs can be staggering. Unlike approved systems with proper backup procedures, vendor support, and integration testing, unauthorised tools often fail spectacularly, taking business-critical data with them.
   
   Consider the Adelaide construction company that lost three months of project data when their unauthorised cloud-based project management tool suddenly discontinued service. With no proper backup procedures in place and no vendor support agreement, data recovery required specialist forensic services costing $45,000, plus the immeasurable cost of recreating lost project documentation and client communications.
   
   Remediation extends beyond just data recovery. When Shadow IT tools are discovered during security audits or compliance reviews, organisations often face expensive emergency migrations to approved platforms. A Sydney law firm recently spent $120,000 in emergency consulting fees to migrate client files from an unauthorised cloud storage service after discovering it didn't meet their professional indemnity insurance requirements.
   
   
6. Compliance Fines and Breach Costs
   n Australia's heavily regulated business environment, Shadow IT represents a compliance time bomb. When employees store sensitive data in unauthorised systems that don't meet Australian Privacy Principles (APPs) or industry-specific regulations, the financial consequences can be devastating.
   
   The healthcare sector faces particular risks here. A regional Queensland medical practice recently faced a $180,000 OAIC penalty after patient records were discovered in an unauthorised cloud storage service that didn't meet health data sovereignty requirements. The practice had no visibility into where sensitive patient information was being stored until a routine audit uncovered the Shadow IT usage.
   
   Professional services firms aren't immune either. When client confidentiality is paramount, unauthorised communication tools or file sharing services can breach professional obligations. A Melbourne accounting firm faced potential legal action from clients after tax documents were inadvertently shared through an unsecured Shadow IT platform, highlighting how compliance breaches can escalate into professional liability claims.
   
   The average cost of a data breach in Australia now exceeds $4.2 million, but when Shadow IT is involved, these costs can escalate rapidly due to the lack of proper incident response procedures, unclear data location, and difficulty in determining the full scope of exposure. Without proper asset management and governance frameworks, businesses often discover they can't even identify what data has been compromised, let alone when and by whom - turning a manageable incident into a regulatory nightmare.

Proven Cost-Saving Strategies

1. Centralised Procurement
   Without a centralised procurement process, it's all too easy for departments to independently purchase software, missing out on volume discounts and creating a fragmented IT environment. When marketing buys Canva Pro while the communications team subscribes to Adobe Creative Cloud, and HR purchases BambooHR while operations uses a different HRIS platform, the organisation loses negotiating power and creates unnecessary complexity.
   
   The Australian Red Cross recently consolidated over 1,000 shadow apps into a governed ecosystem, saving $850,000 annually. While the transformation wasn't just about cost reduction – by centralising procurement, they gained visibility into their entire software stack, eliminated redundant licenses, and negotiated enterprise agreements that provided better functionality at lower per-user costs. The bonus? Their IT team could finally provide proper support and security oversight for all business-critical applications.
   
   The key to successful centralised procurement isn't just saying "no" to departmental requests – it's about creating a streamlined approval process that balances business needs with governance requirements. Modern procurement platforms can automate vendor assessments, contract negotiations, and license management, making it easier for IT teams to say "yes" to legitimate business requirements while maintaining control.
   
   
2. AI processing of Expense claims
   Manual expense claim reviews are notoriously ineffective at catching unauthorised SaaS subscriptions buried in employee reimbursements. When staff can simply expense a $29/month Slack subscription or a $15/month Dropbox upgrade without triggering any red flags, Shadow IT spending can quickly spiral out of control.
   
   A NSW construction firm recently implemented AI-driven expense monitoring after discovering their project managers were expensing various unauthorised project management tools. The AI system flagged recurring SaaS charges, subscription patterns, and even identified when multiple employees were paying for the same type of software. Within three months, they uncovered $250,000 in unbudgeted SaaS spend – money that was redirected toward enterprise licenses that provided better functionality and security.
   
   Modern AI expense processing goes beyond simple keyword matching. These systems can identify subscription patterns, flag unusual vendor relationships, and even predict when departments might be tempted to purchase unauthorised software based on their expense history. The result is real-time visibility into Shadow IT spending before it becomes a budget problem.
   
   
3. Enhanced IT Compliance Toolsets
   Traditional network monitoring tools often miss cloud-based Shadow IT because they can't see into encrypted web traffic or distinguish between approved and unauthorised SaaS applications. Without proper visibility tools, IT teams are essentially flying blind, discovering unauthorised applications only during security incidents or compliance audits.
   
   Cancer Council Queensland transformed their IT governance by implementing Microsoft Defender for Cloud Apps, which provided real-time visibility into all cloud application usage across their organisation. The system automatically flagged high-risk applications, enforced data loss prevention policies, and provided detailed usage analytics that helped them understand why staff were turning to Shadow IT in the first place. The result? 100% email deliverability, improved security posture, and a 40% reduction in IT support tickets.
   
   Modern SSPM (SaaS Security Posture Management) platforms go beyond simple detection – they provide risk scoring, automated policy enforcement, and integration with existing security tools. These platforms can automatically quarantine high-risk applications, enforce multi-factor authentication requirements, and provide detailed compliance reporting that satisfies audit requirements.
   
   
4. Improve Team Engagement on IT Issues
   The biggest mistake we see organisations make with Shadow IT is treating it as purely a technical problem - it's fundamentally a people (and process/trust??) problem. When employees feel that approved IT systems are slow, inflexible, or inadequate for their needs, they'll inevitably seek alternatives – regardless of policies or technical controls.
   
   A Sydney tech firm that we partner with completely transformed their Shadow IT problem by shifting from enforcement to engagement. Instead of simply blocking unauthorised applications, they launched interactive workshops that demonstrated real-world breach scenarios, explained the business impact of compliance failures, and – most importantly – created channels for employees to request new tools or improvements to existing systems. The result was a 50% reduction in Shadow IT usage and, surprisingly, higher employee satisfaction with IT services.
   
   Effective engagement requires more than just annual security training. Regular "lunch and learn" sessions, departmental IT liaisons, and transparent communication about why certain tools are approved or rejected helps build trust between IT and business teams. When employees understand that IT policies exist to protect both the organisation and their own productivity, they become partners in governance rather than obstacles to overcome.

Actionable Steps for Your Business

1.  Conduct a "Shadow IT Audit Blitz"
   The Outcome: Uncover hidden software costs and security risks within 30 days
   The Process: Deploy network monitoring tools like Microsoft Defender for Cloud Apps or conduct a manual firewall log analysis to identify unauthorized applications. Cross-reference findings with expense reports and departmental credit card statements. Create a comprehensive inventory of all discovered shadow applications, their costs, and risk levels. This rapid assessment provides the foundation for all future Shadow IT governance decisions.
   
   
2. Launch "App Store Fridays"
   The Outcome: Transform Shadow IT from a compliance problem into an innovation opportunity
   The Process: Establish weekly sessions where departments can demonstrate unauthorized tools they're using and explain why they chose them over approved alternatives. IT teams evaluate these tools for security, compliance, and integration potential. Approved tools get added to an internal "app store" while risky applications are replaced with secure alternatives. This collaborative approach reduces resistance while maintaining governance.
   
   
3. Implement "Expense Account AI Watchdogs"
   The Outcome: Catch unauthorized SaaS spending before it becomes a budget problem
   The Process: Deploy AI-powered expense monitoring that automatically flags recurring SaaS charges, subscription patterns, and duplicate software purchases. Set up automated alerts when employees expense software-related costs, and create approval workflows that require IT sign-off for any technology purchases. This proactive approach prevents Shadow IT from hiding in expense reports.
   
   
4. Create "IT Champions" in Every Department
   The Outcome: Build internal advocates who understand both business needs and IT governance
   The Process: Identify tech-savvy employees in each department and train them on security policies, compliance requirements, and approved tool alternatives. These champions become the first point of contact for colleagues considering unauthorized tools, helping redirect requests through proper channels while providing peer-to-peer education about risks and alternatives.
   
   
5. Deploy "Zero Trust, Maximum Visibility"
   The Outcome: Secure all devices and applications regardless of approval status
   The Process: Implement Cloud Access Security Brokers (CASB) and endpoint detection tools that monitor all network traffic and application usage. Enforce multi-factor authentication across all cloud services, approved or otherwise. Use automated policies to block high-risk applications while gathering usage data on borderline tools. This approach provides security even when Shadow IT exists while building the evidence needed for informed governance decisions.

Keep in mind that the root cause of Shadow-IT is RARELY based on technology and is more likely to be a result of well intentioned, but misguided drive to deliver - support, guidance and encouragement of your team will reduce the risk, impact and cost!