Average Cost of a Data Breach Increases 2.5%

The total average cost of a data breach last year reached $202 per record, a 2.5% increase since 2007, a study published Monday revealed.

The study was conducted by the Ponemon Institute LLC , a privacy and data-protection research group, and PGP, a data-encryption vendor. It was based on the costs incurred by 43 organizations following actual data breaches.

According to the report, the total average cost per company surveyed was more than $6.6 million per breach, up from $6.3 million in 2007 and $4.7 million in 2006. The highest reported total cost among the 43 respondent organizations was $32 million.

Of the average $202 per record cost, $139 was attributable to lost businesses as a result of the breach. As a percentage of the total cost per record, that represents 69%, which is up from 67% in 2007 and 54% in 2006. Customers, it seems, lose faith in organizations that can't keep data safe and take their business elsewhere.

"This finding reinforces the message delivered by leading enterprise IT managers and industry analysts that organizations must focus on proactively protecting their data instead of relying exclusively on written policies, procedures, and training," the report says.Of particular note for many organizations will be the finding that third-party data breaches have become more common and that they cost more than internal breaches. Breaches that originated with outsourcing companies, contractors, consultants, and business partners accounted for 44% of the breach total, up from 40% in 2007. Third-party breaches cost an average of $231 per record, compared with $179 for breaches originating from within the organization that owns the data.

At the same time, it's insider negligence that's the biggest cause of breaches. According to the study, more than 88% of the breaches studied in 2008 arose from an insider's mistakes. At least such breaches tend to be less expensive, at $199 per record, than breaches arising from malicious acts, at $225 per record.

In terms of preventive measures, the top three employed by respondents were training programs, additional manual procedures or controls, and the expanded use of encryption. PGP, as it happens, sells encryption products and services to businesses.

Long viewed as more trouble than it was worth, encryption may finally have become a necessity. Heartland Payment Systems, which in mid-January disclosed a potentially massive data breach that could affect more than 100 million accounts, said just last week that it was accelerating its effort to deploy end-to-end encryption to protect its transaction data. Better late than never, but pre-breach deployment would have been better still.

Data-loss prevention products can protect your intellectual property from internal mishandling. InformationWeek has published an independent review of some of the leading products. Download the report here0