Hidden Costs of Data Breaches Increase Expenses for Businesses - Part 1
August 08, 2018

Hidden costs in data breaches – such as lost business, negative impact on reputation and employee time spent on recovery – are difficult and expensive to manage, according to the 2018 Cost of a Data Breach Study, sponsored by IBM Security and conducted by Ponemon Institute.

For example, the study found that one-third of the cost of "mega breaches" (over 1 million lost records) were derived from lost business.

The study found that the average cost of a data breach globally is $3.86 million, a 6.4 percent increase from the 2017 report.

The study also calculated the costs associated with "mega breaches" ranging from 1 million to 50 million records lost, projecting that these breaches cost companies between $40 million and $350 million respectively.

Average cost of a data breach globally is $3.86 million

"While highly publicized data breaches often report losses in the millions, these numbers are highly variable and often focused on a few specific costs which are easily quantified," said Wendi Whitmore, Global Lead for IBM X-Force Incident Response and Intelligence Services (IRIS). "The truth is there are many hidden expenses which must be taken into account, such as reputational damage, customer turnover, and operational costs. Knowing where the costs lie, and how to reduce them, can help companies invest their resources more strategically and lower the huge financial risks at stake."

Hidden Figures – Calculating the Cost of a Mega Breach

In the past five years, the amount of mega breaches (breaches of more than 1 million records) has nearly doubled - from just nine mega breaches in 2013, to 16 mega breaches in 2017. Due to the small amount of mega breaches in the past, the Cost of a Data Breach study historically analyzed data breaches of around 2,500 to 100,000 lost records.

Based on analysis of 11 companies experiencing a mega breach over the past two years, this year's report uses statistical modelling to project the cost of breaches ranging from 1 million to 50 million compromised records.

Key findings include:

■ Average cost of a data breach of 1 million compromised records is nearly $40 million dollars

■ At 50 million records, estimated total cost of a breach is $350 million dollars

■ The vast majority of these breaches (10 out of 11) stemmed from malicious and criminal attacks (as opposed to system glitches or human error)

■ The average time to detect and contain a mega breach was 365 days – almost 100 days longer than a smaller scale breach (266 days)

For mega breaches, the biggest expense category was costs associated with lost business, which was estimated at nearly $118 million for breaches of 50 million records – almost a third of the total cost of a breach this size. IBM analyzed the publicly reported costs of several high profile mega breaches, and found the reported numbers are often less than the average cost found in the study. This is likely due to publicly reported cost often being limited to direct costs, such as technology and services to recover from the breach, legal and regulatory fees, and reparations to customers.

Read Hidden Costs of Data Breaches Increase Expenses for Businesses - Part 2

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