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How Data Breach Can Impact Your Business
Digitalization has changed the business landscape. This new business landscape also creates opportunities for cyber criminals. Cyber security has hugged the headlines in the past two months with an alarming number of high-profile data breaches. What kind of harm does data breach really do to your business?
What is Data Breach
Data breach is an incident in which company’s confidential data – including customers’ confidential data – is potentially viewed, stolen or used by an unauthorized person. A data breach can be caused by malicious or criminal attack, system glitch or human error. The "2017 Cost of Data Breach Study" by Ponemon Institute found that 47% of the root cause of data breach is malicious or criminal attack, followed by human error (28%) and system glitch (25%).
The business function that’s most likely to be affected by a data breach is the operation. Cisco in its 2017 Annual Cyber Security Report revealed that 45 percent of the cyber outages lasted from 1 to 8 hours; 15 percent lasted 9 to 16 hours, and 11 percent lasted 17 to 24 hours.
Financial Cost of Data Breach
Data breach comes with the following incidental costs:
I. Detection and escalation costs
II. Notification costs
III. Post data breach response costs
According to the Ponemon Institute 2017 cost of data breach study, the average cost for each lost or stolen record containing sensitive and confidential information is $141. The average total cost of data breach per incident is $3.62 million according to Ponemon Institute. The study also found that detection and escalation costs are highest in Canada; notification and post data breach response costs are highest in the United States.
The faster the data breach is identified and contained, the lower the costs.
Ponemon Institute study showed that there’s a relation between how fast an organization identifies and contains data breach incidents and the financial aftermaths. The study showed that security complexity and the deployment of disruptive technologies such as access to cloud-based applications and the use of mobile devices, including bring your own device (BYOD) and mobile apps, increase the complexity of identifying and containing data breaches.
Massive cloud migration at the time of the data breach increases the cost.
The Ponemon Institute study found that cloud migration – the process of transferring data from onsite computers to the cloud or transferring data from one cloud environment to another – at the time of the data breach was shown to increase the cost by $14 per record, increasing the average cost for each lost or stolen record from $141 to an adjusted average cost of $155.
The more churn, the higher the total cost of data breach.
Churn is the number of customers who discontinue their subscriptions to your business service within a given period. The Ponemon Institute study showed that businesses that experienced less than a one percent loss of existing customers had an average total data breach cost of $2.6 million, while companies that experienced a churn rate greater than four percent had an average cost of $5.1 million.
Reputational Cost of Data Breaches
While it’s easy to pin down financial cost of data breaches, reputational cost of data breaches is difficult to determine. Reputational cost can be measured by churn rate. But reputational cost is more than churn rate.
Forbes Insights in the whitepaper “Fallout: The Reputational Impact of IT Risk” wrote, “Reputation has always been a thorny thing to value in dollar terms.”
A 2012 IBM study found that reputational damage as a result of data breach could last for months, while major breaches could last for years. If your customer can’t access your company website or application today, you don’t only lose one sale, but risk of ruining your company’s reputation.
“You will be held accountable for what you did or didn’t do in the months and years leading up to a crisis,” said Prof. Daniel Diermeier, the IBM Professor of Regulation and Competitive Practice at the Department of Managerial Economics and Decision Sciences at the Kellogg School of Management. “You are only as good as the decisions you made when you put your systems in place.”
“The disruption from human error, system outage or loss of data, even a minor disruption can have a significant impact on your reputation,” said Laurence Guihard-Joly, General Manager of Business Continuity & Resiliency Services at IBM Global Technology Services. “A cost, first, but also a real impact on whether people will choose your service.”
Forty-nine percent of the security professionals surveyed in Cisco’s 2017 Annual Cyber Security Report revealed that their organization has had to manage public scrutiny after a data breach. The days of quietly dealing with data breaches may be long gone, according to Cisco, with 49% of those organizations surveyed said that they disclosed the data breach voluntarily, and 31% were forced to manage public scrutiny after the data breach was made public by a third-party. Cisco said there are just too many regulators, media and social media users who’ll expose the data breach.
Data Breaches Drive Cyber Security Improvement
Thirty-eight percent of the security professionals surveyed by Cisco reported that data breach drove improvements in security threat defense, policies and procedures. In particular:
“Organizations that have not yet suffered a breach of their networks due to attackers may be relieved they’ve escaped. However, this confidence is probably misplaced,” Cisco said. “Given the attackers’ range of ability and tactics, the question isn’t if a security breach will happen, but when.”
Give us a call today, and prevent a data breach.
Steve E. Driz