Analytics, AI/ML
May 24, 2024

AI Risks: How Businesses Can Safeguard Their Future

Cogent Infotech
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Dallas, Texas
May 24, 2024

Eliezer Yudkowsky, co-founder of Machine Intelligence Research Institute said, “ By far the greatest danger of Artificial Intelligence is that people conclude too early that they understand it.”

Even though the intelligence is “artificial”, it poses “real” risks to businesses and society.  This article covers a broad range of potential risks associated with the development and deployment of artificial intelligence (AI). It delves into both short-term and long-term concerns, addressing issues related to safety, ethics, data privacy, bias, operational failures, and societal impact. This article also highlights the importance of proactive risk management and the need for responsible AI development practices to mitigate these risks.

According to a report by KPMG the investments in AI, which is currently around $12.4 billion of global investments will increase by at least 20% by 2025. This means business leaders, CIOs, and risk managers must understand the risks and make informed strategic decisions that align with the overall objective and provide sustainable growth and profitability. 

Major AI Risks to Businesses

For businesses leveraging AI technologies, several major risks should be carefully considered and addressed to ensure successful implementation and minimize potential negative impacts. Here are some key AI risks for business:

Machine Learning Bias Risk

The algorithms are fed with data and the programs then analyze, classify, and detect anomalies. The algorithms then store the trend in the data in the form of a mathematical model which is used to make inferences. These recommendations are then used by businesses or governments to make decisions. 

The question arises, how can machines give biased or skewed suggestions? In 2015, Amazon pulled the plug on its recruitment algorithm as it preferred men over women based on data from the last 10 years. This shows the dominance of men in technology and the bias in the algorithm perpetuated this bias. Algorithmic or machine learning biases arise due to flawed training data, programming errors, or biased selection of data.

Black Box Problem

Deep learning AI models are very complex and difficult to interpret. This makes it impossible to understand “how” the decision was made by the AI tool. For example, in 2015, Google publicly apologized when one of its image recognition algorithms tagged a black couple as “gorillas”. Though Google accepted the error and took corrective steps it was never known how the deep learning image recognition algorithm wrongly labeled the image in the first place.

Security Risk

Security risks in AI pose significant challenges due to the complex and evolving nature of artificial intelligence technologies. AI systems are susceptible to various security threats, including, data privacy concerns, adversarial attacks, and model vulnerability. AI models are vulnerable to adversarial attacks, where malicious actors manipulate input data to deceive the AI system into making incorrect predictions or decisions. Also, AI uses a large number of personal and sensitive data. Inadequate measures to prevent data breaches, data leaks, and unauthorized access can expose businesses to legal and regulatory repercussions. In 2018, hackers used an AI enabled botnet to attack TaskRabbit. The company had to shut down the website and mobile app while they dealt with the damage. It was found that over 37.5 million personal records were breached and personal and financial information was stolen.

Workforce Displacement and Skills Gap Risk

According to a 2020 World Economic Forum report, AI could replace as many as 85 million jobs worldwide by 2025. AI systems excel at automating repetitive and rule-based tasks, such as data entry, routine customer service inquiries, and assembly line operations. As a result, jobs that involve primarily repetitive tasks are at risk of being automated, leading to job displacement for workers in these roles. British telecom company BT announced that it will cut 55,000 jobs by 2030 of which 10,000 will be replaced by AI. These job cuts will mostly affect low-skilled workers making income inequality wider.  As AI takes on more mundane tasks, responsibilities that require human creativity, critical thinking, problem-solving, and emotional intelligence will shift. Workers will need to adapt and acquire new skills to remain competitive in the job market. 

To effectively address the skill gap in AI and ensure that businesses have the talent and expertise required for successful AI adoption, organizations must invest in employee training and development, create a culture of innovation and experimentation, collaborate with educational institutes and training providers to develop AI curriculum tailored to their needs and provide access to necessary resources and technologies to apply AI techniques effectively in their work.

Liability Risk

The use of AI technologies introduces various liability risks for businesses and organizations due to the complexity and potential consequences of AI-driven decisions. For example, the University of Washington researchers tested various AI tools to determine if they could read chest X-rays and diagnose COVID-19. The researchers found that the models learned shortcuts and rather than looking for patterns in the x-ray used other data like age and position of the patient. Now, if this is a real-life scenario and an AI model misdiagnoses a patient, who should be held responsible? In the present day, when issues arise within businesses or organizations, individuals are typically held accountable, and appropriate corrective measures are implemented. However, in instances where AI systems malfunction or produce undesirable outcomes, determining liability becomes complex. Who should be held responsible when AI fails?

Vendor and Supply Chain Risks

Entrusting AI components to third-party vendors or outsourcing AI services can introduce supply chain vulnerabilities linked to data security, intellectual property, and vendor reliability. Businesses must conduct thorough due diligence and forge secure partnerships with AI providers to mitigate these risks effectively. According to a report published by MIT Sloan Management Review and Boston Consulting Group, 55% of AI failures come from third-party tools. Business executives may not be aware of all the AI tools in use across their organizations, a phenomenon referred to as "shadow AI."

Regulatory Compliance

The use of AI is subject to evolving regulatory frameworks related to data protection, consumer rights, and algorithmic transparency. Non-compliance with regulations (e.g., GDPR, CCPA) can result in legal liabilities, fines, and disruptions to business operations.

Operational Risks

AI technologies deployed in critical business operations (e.g., autonomous vehicles, and healthcare diagnostics) can pose operational risks if they malfunction or produce erroneous outputs. System failures or inaccuracies can lead to financial losses and reputational damage.

Strategic Management of AI Risks

Strategic management of AI risks involves proactively identifying, assessing, and mitigating potential risks associated with the adoption and deployment of artificial intelligence technologies within an organization. Here's a structured and robust framework for businesses to analyze AI risks effectively before deploying an AI tool:

Determine Risk Criteria and Objectives

This is the first and crucial step for successful AI implementation. The business must define the objectives and goals that AI is intended to support. Specify the specific criteria used to evaluate AI risks, including considerations related to data privacy, cybersecurity, regulatory compliance, ethical implications, operational impacts, and business continuity.

Identify AI Use Cases

Catalog and document all AI applications, projects, and initiatives in the organization used across public clouds, SaaS, and private domains. This is crucial as many employees use AI tools without proper approvals. This is generally termed “Shadow AI”. Label AI use cases based on their criticality, complexity, and potential impact on business operations and stakeholders.

Risk Identification

Conduct workshops, interviews, and brainstorming sessions with stakeholders to identify potential AI risks. Consider risks related to data quality and availability, algorithmic biases, model performance, AI hallucinations, scalability, interpretability, and integration challenges.

Risk Assessment

Evaluate the likelihood and impact of identified risks using quantitative and qualitative methods. Use risk assessment techniques such as risk matrices, scenario analysis, and impact estimation to prioritize risks based on severity and urgency.

Data Privacy and Security Analysis

Assess data privacy risks associated with AI applications, including data collection, storage, processing, and sharing practices. Evaluate cybersecurity risks related to AI systems, including vulnerabilities, threat vectors, and potential attack scenarios.

Bias and Fairness Evaluation

Analyze AI algorithms for potential biases and fairness issues using statistical methods, sensitivity analysis, and fairness metrics. Implement bias testing and mitigation strategies to ensure fairness and non-discrimination in AI decision-making.

Regulatory Compliance Review

Review applicable laws, regulations, and industry standards governing AI technologies (e.g., GDPR, CCPA, HIPAA). Assess the AI tool's compliance with regulatory requirements related to data protection, consumer rights, and algorithmic transparency.

Ethical Considerations

Evaluate the ethical implications of AI use cases, including accountability, transparency, consent, and societal impact. Align AI initiatives with ethical guidelines and organizational values to mitigate ethical risks.

Business Impact Analysis

Assess potential operational, financial, reputational, and legal impacts of AI risks on the organization. Identify dependencies, critical assets, and stakeholders affected by AI-related risks.

Risk Treatment and Mitigation

Develop risk mitigation strategies tailored to each identified risk, considering control measures, risk transfer options, and acceptance criteria. Implement controls and safeguards to mitigate high-priority risks, such as data encryption, access controls, model validation, and contingency plans.

Monitoring and Continuous Improvement

Establish monitoring mechanisms to track AI risk indicators and performance metrics over time. Conduct regular audits, reviews, and updates to AI risk assessments based on lessons learned, emerging threats, and organizational changes.

AI tools and solutions are growing at a faster pace than ever before. There are some frameworks and regulations across the globe like European Union’s AI Act and Australia’s AI Ethics Framework but there is no specific law governing AI tools. Thus the responsibility lies on the businesses to proactively manage AI-related risks so that organizations can enhance operational resilience, maintain regulatory compliance, build trust with stakeholders, and ensure the responsible deployment of AI technologies to achieve business objectives.

Business leaders and decision-makers must take a proactive approach while implementing machine learning algorithms. As there are no laws or regulations around the use of artificial intelligence, the onus lies with the business unit in case of unforeseen events like deep fakes, hallucinations, or data poisoning. When considering any machine learning tools, their procurement, deployment, training, and monitoring should be continuous. Managers must focus on the following while developing strategies for AI risk management:

  • Establish a Cross-Functional Team
  • Define AI Use Cases and Objectives
  • Conduct Risk Workshops and Brainstorming Sessions
  • Use Risk Assessment Frameworks
  • Consider AI Lifecycle Stages
  • Analyze Data Quality and Integrity
  • Assess Model Performance and Interpretability
  • Evaluate Regulatory and Compliance Risks
  • Consider Ethical and Societal Implications
  • Document and Prioritize Identified Risks
  • Engage Stakeholders and Obtain Feedback

AI enhances efficiency, automates tasks, improves decision-making, personalizes experiences, predicts trends, optimizes operations, detects fraud, drives innovation, and empowers smarter, sustainable solutions. AI is successful when it aligns with organizational goals, enhances capabilities, and delivers measurable benefits while upholding ethical standards and addressing societal needs.

Tools and Technologies

Given broader access to AI development tools and datasets, organizations across the globe—businesses, nonprofits, and government entities—are rapidly deploying AI systems, impacting millions of users at an unprecedented rate. Amid this widespread deployment, valid concerns arise regarding algorithmic systems potentially replicating, reinforcing, or amplifying harmful social biases. Algorithmic auditing becomes essential to realize AI benefits, analyze system operations, ensure intended functionality, and mitigate broader societal risks.

Auditing of AI tools should be done at various stages of its lifecycle, namely, design, development, deployment, and monitoring. Usually, questions around auditing arise after the deployment of AI tools which introduces unnecessary risks. 

While still emerging, several AI auditing frameworks have been published by government and international organizations. Some notable AI auditing frameworks include:

U.S. Government Accountability Office AI Framework

According to the Government Accountability Office, this framework was created, “To help managers ensure accountability and responsible use of artificial intelligence (AI) in government programs and processes, GAO developed an AI accountability framework. This framework is organized around four complementary principles, which address governance, data, performance, and monitoring.”

IIA Artificial Intelligence Auditing Framework

As per the report by the National Institute of Standards and Technology, “ The Framework is comprised of three overarching components — AI Strategy, Governance, and the Human Factor — and seven elements: Cyber Resilience; AI Competencies; Data Quality; Data Architecture & Infrastructure; Measuring Performance; Ethics; and The Black Box.”

Singapore PDPC Model AI Governance Framework

This framework is developed by Singapore’s Personal Data Protection Commission (PDPC) in conjunction with the World Economic Forum Center. The model framework is grounded in two overarching guiding principles: Organizations leveraging AI for decision-making must ensure that AI processes are explainable, transparent, and fair. Secondly, AI solutions should be human-centric. The framework guides four areas:some text

  • Internal governance structures and measures
  • Determining the level of human involvement in AI-augmented decision-making
  • Operations management
  • Stakeholder interaction and communication

Whether initiating an AI program from scratch or integrating an auditing framework into an existing one, these AI auditing frameworks serve as valuable starting points or general reference tools. It's important to note that each framework need not be employed individually or in full; it is suggested to extract relevant components and ideas from each to construct a tailored AI auditing framework to suit specific business needs.

There are several risk assessment models and frameworks designed specifically for assessing risks associated with AI (Artificial Intelligence) technologies. These models help organizations identify, analyze, and manage potential risks throughout the AI lifecycle. Here are some commonly recognized risk assessment models for AI:

NIST SP 800-30

The National Institute of Standards and Technology (NIST) Special Publication 800-30 guides conducting risk assessments for information technology systems, including AI systems. Organizations can adapt this framework to assess risks associated with AI technologies, considering factors such as data quality, model performance, and cybersecurity.

ISO/IEC 27005

ISO/IEC 27005 is an international standard that outlines principles and guidelines for information security risk management. This framework can be applied to assess risks related to AI systems, focusing on data security, privacy, compliance, and operational impacts.

FAIR (Factor Analysis of Information Risk)

The FAIR model is a quantitative risk analysis framework that helps organizations measure and prioritize information security risks, including those associated with AI. FAIR provides a structured approach to assessing AI risks based on factors such as asset value, threat frequency, vulnerability, and impact.

AI Ethics Impact Assessment Frameworks

Various organizations and initiatives have developed AI ethics impact assessment frameworks to evaluate the ethical implications and societal risks of AI deployments. Examples include the IEEE Ethically Aligned Design Framework, the AI4People Ethical Framework for a Good AI Society, and the European Commission's Ethics Guidelines for Trustworthy AI.


The MITRE ATT&CK (Adversarial Tactics, Techniques, and Common Knowledge) framework for Industrial Control Systems (ICS) can be adapted to assess security risks in AI systems. This framework provides insights into potential attack vectors and security weaknesses that may impact AI deployments.

OWASP Top Ten AI Risks

The Open Web Application Security Project (OWASP) has developed a list of the top ten risks specific to AI technologies. This resource helps organizations identify common vulnerabilities and threats associated with AI systems, such as adversarial attacks, model evasion, and data poisoning.

IBM AI Risk Management Framework

IBM offers a comprehensive AI risk management framework that covers various aspects of AI governance, risk assessment, and compliance. This framework includes guidelines for identifying, analyzing, and mitigating risks associated with AI implementations.

When selecting a risk assessment model for AI, organizations should consider their specific use case, industry requirements, and organizational goals. It's important to tailor the chosen framework to address the unique challenges and risks associated with AI technologies while ensuring alignment with regulatory standards and ethical considerations. Regular updates and adaptation of risk assessment practices are essential to effectively manage AI-related risks and ensure the responsible deployment of AI systems.

Future Outlook

The landscape of AI risks will evolve with advancing technologies, posing new challenges for businesses. Future risks include the heightened complexity of AI systems, emerging security threats like adversarial attacks, and ethical dilemmas surrounding fairness and transparency. Businesses will need to navigate evolving regulatory landscapes, prioritize data privacy and governance, and address concerns about job displacement and human-machine collaboration. Global harmonization of AI regulations and the integration of AI into critical infrastructure will require robust risk management strategies. Proactive measures to mitigate biases, enhance transparency, and adapt to emerging technologies will be essential to foster responsible AI adoption and ensure long-term success.

Regulations and industry standards are pivotal in shaping AI risk management by establishing clear guidelines, fostering accountability, and promoting responsible practices. First, compliance frameworks like GDPR and CCPA mandate stringent data handling requirements, ensuring privacy protection and reducing unauthorized access risks. Second, ethical AI standards such as IEEE Ethically Aligned Design emphasize fairness, transparency, and accountability, guiding businesses to manage risks responsibly. Third, regulations address biases in AI algorithms, requiring bias testing and transparency to mitigate discrimination risks. Additionally, regulations promote accountability and transparency by requiring explanations for AI decisions, enhancing trust, and reducing risks from opaque systems. Moreover, security frameworks like NIST SP 800-53 enhance cybersecurity, reducing vulnerabilities and safeguarding against breaches and attacks. These guidelines drive innovation by promoting best practices and interoperability, advancing AI technology safely. Lastly, harmonized regulations enable global collaboration, streamlining compliance efforts and reducing regulatory risks across borders. Overall, compliance with regulations and standards ensures ethical AI deployment and effective risk management in a rapidly evolving landscape.


Mastering AI risks is imperative for safeguarding a company's future amidst the transformative impact of artificial intelligence on business operations and societal interactions. Effective risk management offers several strategic advantages. Firstly, it enhances trust and reputation by demonstrating transparent and responsible AI practices to stakeholders, including customers, investors, and regulators. This, in turn, bolsters credibility and builds lasting relationships. Secondly, addressing AI risks ensures regulatory compliance with evolving laws and industry standards, reducing legal liabilities and regulatory scrutiny. Proactive risk mitigation also minimizes operational disruptions by preventing AI failures and optimizing business continuity.

Moreover, managing AI risks protects sensitive data and intellectual property, and mitigates risks associated with data breaches and cyber threats. By actively mitigating biases in AI algorithms, businesses promote fairness and inclusivity in decision-making processes, fostering a more equitable workplace and marketplace. Furthermore, mastering AI risks optimizes resource allocation by identifying and prioritizing key areas of concern, thereby maximizing investments in AI technologies.

Ultimately, businesses that prioritize AI risk management cultivate a culture of innovation, leveraging AI's transformative potential while effectively navigating challenges. Anticipating and managing AI risks not only prepares organizations for future disruptions and technological advancements but also ensures long-term resilience and competitiveness in an increasingly AI-driven landscape. Business leaders should prioritize continuous learning in AI to stay competitive. Embrace ongoing education on AI trends and applications. Foster an adaptable culture that embraces innovation. Invest in upskilling teams to harness AI's potential responsibly for sustainable growth and success.

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