The Risks of Using AI Without Company Approvals

Updated: Jun 20

The risks of an enterprise using AI without your company’s formal approvals can be significant. These risks can arise in legal, ethical, and operational areas. Let’s explore the major risks associated with unauthorized AI use in detail.

Data Privacy & Security Risks

One of the primary concerns with using AI without proper authorization is the risk to data privacy and security.

Unauthorized Data Use: Employees or departments may input sensitive company or client data into AI tools. This includes platforms like ChatGPT, Bard, or custom models. Such actions can expose confidential information and lead to data leaks.
Compliance Violations: Using AI without formal guidelines may violate crucial regulations. Laws like GDPR, HIPAA, CCPA, or industry-specific regulations can be compromised if personal or regulated data are shared with third-party AI tools.

Legal & Regulatory Risks

Legal and regulatory risks are another area of concern for enterprises using AI.

Lack of Audibility: AI decisions made without oversight may be challenging to justify or trace back. This lack of visibility can lead to serious legal problems.
Intellectual Property (IP) Issues: Utilizing AI-generated content without understanding licensing can spark IP disputes. Companies could face legal battles over content usage.
Third-party Terms Violations: Employees might unknowingly breach terms of service when using AI tools. This could expose the company to liability and legal issues.

Ethical & Reputational Risks

The ethical implications of using AI can lead to significant reputational damage.

Bias and Discrimination: AI systems can generate biased outputs, especially in sensitive areas like hiring, lending, or customer service. This risks damaging trust and violating anti-discrimination laws.
Misrepresentation: AI-generated content, be it marketing material or legal advice, can mislead stakeholders or customers. Misrepresentation can have long-lasting repercussions.
Brand Damage: Unsupervised AI use might produce outputs that harm your brand image. It is crucial to maintain control over what AI generates.

Operational Risks

These risks can affect a company’s daily operations.

Shadow IT: Employees may bypass the IT department by using AI tools without approval. This creates vulnerabilities and adds complexity to operations.
Unvalidated Outputs: AI tools can produce incorrect or fictional information, termed "hallucination." This can lead to poor decision-making or substandard product quality.
Dependency Risk: Over-relying on AI can degrade employees' skills and decision-making abilities. A lack of critical thinking can arise when teams depend solely on AI for insights.

Financial Risks

There are significant financial ramifications associated with unapproved AI usage.

Litigation Costs: Data breaches, IP infringement, or regulatory noncompliance can result in costly lawsuits and fines.
Wasted Investment: Unauthorized AI use can lead to misaligned efforts across departments. This misalignment can drain time and financial resources.

Mitigation Strategies

To manage these risks, companies should implement robust mitigation strategies.

Establish AI Governance Frameworks: Define approved AI tools, data handling policies, and ethical standards. Governance helps provide a clear structure for AI usage.
Train Employees: Teach staff about safe and responsible AI usage. Training should include guidelines on what actions to avoid.
Vet Tools Centrally: The legal, IT, and compliance teams should assess AI tools before any enterprise-wide deployment. This ensures that all tools meet necessary standards and regulations.
Monitor Usage: Implement technical controls to track and manage who uses which AI tools and how. Continuous monitoring helps maintain compliance and security.

Using AI responsibly is essential in today’s digital landscape. It can offer many benefits, but the risks of using it without formal approvals are significant. Addressing these concerns proactively can safeguard your enterprise from legal, ethical, and operational challenges.

For further discussion, feel free to reach out to me at simon@smartapprove.co.uk.