What’s the True Cost of a Data Breach?

The direct hard costs of a data breach are typically easy to calculate. An organization can assign a value to the human-hours and equipment costs it takes to recover a breached system. Those costs, however, are only a small part of the big picture.

Every organization that has experienced a significant data breach knows this firsthand. Besides direct financial costs, there are actually lost business, third-party liabilities, legal expenses, regulatory fines, and damaged goodwill. The true cost of a data breach encompasses much more than just direct losses.

Forensic Analysis. Hackers have learned to disguise their activity in ways that make it difficult to determine the extent of a breach. An organization will often need forensic specialists to determine how deeply hackers have infiltrated a network. Those specialists charge between $200 and $2,000 per hour.

Customer Notifications. A company that has suffered a data breach has a legal and ethical obligation to send written notices to affected parties. Those notices can cost between $5 and $50 apiece.

Credit Monitoring. Many companies will offer credit monitoring and identity theft protection services to affected customers after a data breach. Those services cost between $10 and $30 per customer.

Legal Defense Costs. Customers will not hesitate to sue a company if they perceive that the company failed to protect their data. Legal costs between $500,000 and $1 million are typical for significant data breaches affecting large companies. Companies often mitigate these high costs with data breach insurance because it covers liability and notification costs, among others.

Regulatory Fines and Legal Judgments. Target paid $18.5 million after a 2013 data breach that exposed the personal information of more than 41 million customers. Advocate Health Care paid a record $5.5 million fine after thieves stole an unsecured hard drive containing patient records. Fines and judgments of this magnitude can be ruinous for a small or medium-sized business.

Reputational Losses. Quantifying the value of lost goodwill and standing within an industry after a data breach is impossible. That lost goodwill can translate into losing more than 20 percent of regular customers, plus revenue depletions exceeding 30 percent. There’s also the cost of missing new business opportunities.

The total losses that a company experiences following a data breach depend on the number of records lost. The average per-record loss in 2017 was $225. Thus, a small or medium-sized business that loses as few as 1,000 customer records can expect to realize a loss of $225,000. This explains why more than 60 percent of SMBs close their doors permanently within six months of experiencing a data breach.

Knowing the risks, companies can focus on devoting their cyber security budget to prevention and response. The first line of defense is technological, including network firewalls and regular employee training. However, hackers can still slip through the cracks, as they’re always devising new strategies for stealing data. A smart backup plan includes a savvy response and insurance to cover the steep costs if a breach occurs. After all, the total costs are far greater than just business interruption and fines; your reputation is at stake, too.

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