Good news for breached entities: it won’t cost you as much and customers are less likely to leave – Ponemon study

The new Ponemon study, 2011 Cost of a Data Breach Study has some interesting findings. From the executive summary:

  • The cost of a data breach declined. For the first time in seven years, both the organizational cost of data breach and the cost per lost or stolen record have declined. The organizational cost has declined from $7.2 million to $5.5 million and the cost per record has declined from $214 to $194. We define a record as information that identifies an individual whose information has been compromised in a data breach. This decline suggests that organizations represented in this study have improved their performance in both preparing for and responding to a data breach. As the findings reveal, more organizations are using data loss prevention technologies, fewer records are being lost in these breaches and there is less customer churn.
  • More customers remain loyal following the data breach. For the first time, fewer customers are abandoning companies that have a data breach. However, certain industries are more susceptible to customer churn, which causes their data breach costs to be higher than the average. Taking steps to keep customers loyal and repair any damage to reputation and brand can help reduce the cost of a data breach.
  • Negligent insiders and malicious attacks are the main causes of data breach. Thirty- nine percent of organizations say that negligence was the root cause of the data breaches. For the first time, malicious or criminal attacks account for more than a third of the total breaches reported in this study. Since 2007, they also have been the most costly breaches. Accordingly, organizations need to focus on processes, policies and technologies that address threats from the malicious insider or hacker.
  • Lost business costs declined sharply from $4.54 million in 2010 to $3.01 million in 2011. These costs refer to abnormal turnover of customers (a higher than average loss of customers for the industry or organization), increased customer acquisition activities, reputation losses and diminished goodwill. During the seven years we studied this aspect of a data breach, the highest cost for lost business was $4.59 million in 2008 and the lowest was $2.34 million in 2005.
  • Certain organizational factors reduce the overall cost. If the organization has a CISO with overall responsibility for enterprise data protection the average cost of a data breach can be reduced as much as $80 per compromised record. Outside consultants assisting with the breach response also can save as much as $41 per record. When considering the average number of records lost or stolen, all of these factors can provide significant and positive financial benefits.
  • Specific attributes or factors of the data breach also can increase the overall cost. For example, in this year’s study organizations that had their first ever data breach spent on average $37 more per record. Or, those that responded and notified customers too quickly without a thorough assessment of the data breach also paid an average of $33 more per record. Data breaches caused by third parties or a lost or stolen device increased the cost by $26 and $22, respectively.
  • Detection and escalation costs declined but notification costs increased. Detection and escalation costs declined from approximately in $460,000 in 2010 to $433,000 in 2011. These costs refer to activities that enable a company to detect the breach and whether it occurred in storage or in motion. This suggests that organizations in 2011 study had the appropriate processes and technologies to execute these activities. Notification refers to the steps taken to report the breach of protected information to appropriate personnel within a specified time period. The costs to notify victims of the breach increased in this year’s study from approximately $510,000 to $560,000. A key factor is the increase in laws and regulations governing data breach notification.

Once again, those who rush to notify before they have completed a thorough assessment wound up spending more than those who complete their assessment before notifying consumers. The difference came to about $33/record.  So while the public wants prompt notification, prompt but inaccurate notification may wind up costing entities more.

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