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US$154 or US$0.58 -- what's the real cost of a breached data record?

Maria Korolov | June 8, 2015
Verizon's and Ponemon Institute's figures don't match.

Ponemon agrees that his institute's report only covers breaches between 5,000 and 100,000 records in size.

But that's because the multi-million-mega-breaches are still relatively rare, he said, and require a different kind of analysis.

For example, since the fixed costs are divided up among more records, the per-record costs would be lower, he said.

"We need more data points to build the model for these data breaches," he said. "And we will, little by little. We're getting there. But so far, we haven't had enough companies with these massive data breaches participate in our benchmarking."

Ponemon has had 11 so far, he said, and at least 30 are needed for meaningful results.

Direct and indirect costs
According to Ponemon, there are many indirect costs that companies have to cover when there's a breach. For example, staffers might be pulled away from their regular jobs to deal with a breach -- but those jobs still have to be covered.

Loss of business is also a significant, and growing, part of the total cost of a data breach. Higher customer turnover, increased customer acquisition costs, and a hit to reputations and goodwill added up to $1.57 million per company, up from $1.33 million the previous years.

"We spent a lot of time building an analytical model based on real costs," he said.

This doesn't show up in the insurance data, he said, and includes some of the biggest costs that companies incur when they suffer a breach.

According to Jacobs, there's a problem with indirect costs, which is why insurance companies don't cover them.

"It's really hard to quantify it," he said.

The reason Verizon decided to look at the breach costs at all, he said, was because of all the attention paid to a number that had very little solid evidence behind it.

For its annual breach report, he said, Verizon gathers hard data from real events, real forensic analysis, and, for the breaches, real claims filed by real people, that are held to a legally binding standard.

"Our entire approach is very high integrity, making sense of data in an open and honest say," he said, "Not go to opinions and surveys."

In particular, he said, with the very largest breaches, the actual cost or record is actually less than a penny.

"So talking about an average cost per record is really misleading," he said. "The reason we showed that 58 cents cost-per-record number was to show how silly it was."

Statistical validity
Finally, Ponemon said, Verizon's regression analysis, while interesting, is based on a very small number of data points which are also not necessarily statistically representative.

"But the main part of the Verizon data breach investigations report is very interesting," he said, referring to the bulk of Verizon's data breach report, which focuses on forensic analyses of the breaches themselves. He advised that the company focus on that in the future.


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