Report: Noncompliance Much More Costly Than Compliance

If you're wondering whether the cost of complying with security regulations is really worth it financially, think again, according to a new report: Noncompliance costs organizations, on average, 2.65 times more than meeting compliance rules does.

The Ponemon Institute study -- which was commissioned by Tripwire -- of 46 global firms during a 12-month period found that meeting compliance costs on average $3.5 million, while noncompliance can add up to around $9.4 million in costs including business disruption, productivity loss, revenue loss, and fines. Ponemon conducted benchmark studies of organizations in various industries (none of which were customers of Tripwire) and interviewed some 160 executives in those organizations.

Companies spent between $446,000 to more than $16 million during that period, according to the Ponemon report, with the most expensive compliance efforts being data protection and enforcement. Technologies for data protection and incident response management incurred the biggest bills.

In noncompliant scenarios, business disruption and loss of productivity were the costliest outcomes -- an average of $3.2 million and $2.4 million, respectively.

"It still costs more to be noncompliant," says Rekha Shenoy, vice president of strategy for Tripwire. "And noncompliance costs grow a lot more when companies grow," according to the report, Shenoy says.

Larry Ponemon, chairman and founder of the Ponemon Institute, said in a statement that he hopes the dollar values the report attaches to noncompliance will provide IT security and compliance professionals more ammunition for compliance initiatives in their organizations. "Companies that invest in compliance activities such as frequent audits, enabling technologies, staff training, and operational processes will find the most success in reducing risk and realize the ROI associated with preventing or reducing non-compliance costs," he said.

According to the findings in the report, organizations that run three to five internal audits per year incur the lowest per-capita compliance cost, an average of $154, whereas those firms that don't conduct in-house audits incur the highest, an average of $341. Overall, 28 percent say they don't run internal audits, and 11 percent perform more than five per year.

"The question is not should I be compliant, but how can I drive down the cost of being compliant?" says Joshua Corman, research director for the enterprise security practice at The 451 Group. "How do I reduce the cost of compliance such that I can liberate funds, time, and cycles to focus on going beyond compliance? ... An attacker knows you are compliant, and he does not care."

Ponemon measured organizations' security postures with its security effectiveness score metric, which showed that companies with the better security or with a higher score tend to be noncompliant less often than others. So the more you spend on compliance relative to the IT budget overall, the less your noncompliance costs, the report concludes.

None of the organizations in the study were free from getting hit by breaches, Tripwire's Shenoy says. "The ones with the highest noncompliance are getting breached the most," Shenoy says. "And those with a higher security effectiveness score have lower non-ompliance practices."

A big challenge for companies is managing multiple compliance programs. "They tend to struggle with multicompliance, with audit after audit," Shenoy says.

And compliance costs are different for different industries: Energy spends more than $24 million; education and research spend $6.8 million; healthcare, $8.86 million; and retail, $9.24 million.

Corman says the report's findings on the percentage of compliance to the total IT budget were surprising. According to the Ponemon report, 39 percent of the organizations spend 6 to 10 percent on compliance; 39 percent spend 11 to 15 percent; 11 percent spend 16 to 20 percent; and 7 percent spend a whopping 21 to 25 percent of their IT budgets on compliance. "That seemed high," Corman says.

A full copy of "The True Cost of Compliance" report is available here for download.

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