Data Breach Costs Vary Significantly by Organization

One of the biggest mistakes that security professionals make when estimating data breach costs is to assume they can use publicly reported costs from breaches at other organizations as a reasonable proxy for their own.

In reality, data breach costs can vary substantially by organization and some of those costs may not even become apparent for several years, analyst firm Forrester Research cautioned in a report released this week. So, when building a business case for investments in data security and operational security, it is better to develop tailored breach estimates instead, Forrester said.

"The biggest misconception is believing that using publicly reported costs from another organization's breach is a reasonable proxy for possible costs for a data breach" in your own organization, says Heidi Shey, the author of the Forrester report.

What's publicly reported in other breaches is typically a subset of measurable short-term costs, such as the cost of investigation and breach notification, she says. They do not always include all other breach-related costs such as those associated with lost employee productivity, regulatory fines, lawsuits, brand damage and recovery, and additional security and audit requirements.

Costs can also vary by the type of data that was compromised. For instance, a breach of customer data or employee data will have very different cost implications compared to breach of intellectual property.

"When organizations think of costs, most of them are the immediate or short-term costs" that typically are incurred in the first six to nine months or so, Shey says.

Firms can overlook some of the squishier, more difficult to measure costs, such as reputation with customers and reputation as an employer. The latter, for instance, could make it more difficult for a breached entity to hire new security staff. Organizations can also often overlook long-term costs, including lawsuits that drag on for years, regulatory investigations that require time and attention to respond to, and settlements such as those with the Federal Trade Commission that can tack on 20 years' worth of audits, Shey says.

When developing a breach estimate, it is better to use a range that shows how different variables can affect the final outcome, rather than a specific number. "The goal," says Shey, "is to understand the factors that influence the costs and move forward the internal discussion about breach impact in a meaningful way."

For instance, use your own estimates as a starting point to show how greater investments in incident response can help minimize breach costs or how delayed notification can increase costs.

The Forrester report identified seven broad direct and indirect cost categories that security professionals need to consider when developing an estimate: response and notification; loss of productivity; lawsuits and settlements; regulatory fines; audit costs; brand recovery costs; and other costs such as higher interest rates because of lower credit ratings after a breach.

For each of these categories, the Forrester report provided an estimated range of the costs that organizations could incur in the event of a breach.

The analyst firm pegged the notification costs for a customer-facing data breach at between $5 and $10 per customer, for example, though it can sometimes be as high as $40 per customer. Forrester estimated hourly rates for incident response services to range between $250 and $550, for public relations and outreach services at between $200 and $500, and for legal services at between $390 and $1,200 per hour.

Forrester's advice on developing customized breach estimates follows a recent report from the Ponemon Institute that showed average breach costs increasing in the US even as it declined elsewhere for the first time in 10 years. The report pegged average breach costs in the US at $7.35 million compared to a global average of just over $3.6 million.

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