This past week, the Ponemon Institute announced their publication of the results of their fifth annual study on the costs of data breaches for U.S.-based companies. The study was sponsored by the PGP Corporation. A similar report for U.K.-based companies was also released. This year's report, entitled 2009 Annual Study: Cost of a Data Breach, displays the results of the Ponemon Institute's research of data breach incidents occurring in 2009.

Overall, as with previous years, the study found that U.S. organizations continue to experience increased costs associated with the data breaches they experience.

The 2009 U.S. study surveyed 45 U.S. companies covering 15 various industry sectors, with the top represented industries including the financial, retail, services and healthcare industries. The size of the breaches experienced by companies surveyed ranged from approximately 5,000 compromised records to approximately 101,000 compromised records, with a cost range of approximately $750,000 up to nearly $31 million.

This year’s study revealed that the average per-record cost of the data breaches experienced by the surveyed organizations was in 2009 $204, which is just $2 more than the average per-record cost in 2008 (click here for the Privacy Blog’s posting on the Ponemon Institute’s 2008 Study), but represented a $66 dollar overall increase since 2005, the first year the Ponemon Institute conducted this same study, when the average per-record cost was $138.

The costs of a data breach include both direct costs (such as communications costs, investigations and forensics costs and legal costs) and indirect costs (such as lost business, public relations costs and new customer acquisition costs), and the study found that some industries experience a higher customer churn rate (i.e., lost business) than others. The industries with the highest customer churn rates in 2009 were the pharmaceutical, healthcare, communications, financial services and services industries.

The study also revealed a variety of primary causes of data breaches experienced by the surveyed companies, including, for example, that:

  • 42% of all breaches studied involved errors made by, or compromises otherwise incurred while a company’s data is in the possession or control of, a third party.
  • 36% of all breaches studied involved lost, misplaced or stolen laptops or other mobile computing devices. Interestingly, the study found that the per-record cost of a data breach involving a stolen laptop or mobile device was just over $224, whereas the per-record cost of a data breach not involving a stolen laptop or mobile device was only around $192.
  • 24% of all breaches studied involved some sort of criminal or other malicious attack or act (as opposed to mere negligence).
  • 82% of all breaches studied involved organizations that had experienced more than one data breach involving the compromise of more than 1,000 records containing personal information.

This study can serve as an incredibly useful tool for companies to understand the full scope of potential costs of a data breach (including both direct and indirect costs) and in performing a cost-benefit analysis of the costs of implementing pre-breach, prophylactic measures (such as policies, training, encryption of sensitive information and other security), versus the potential costs of experiencing and dealing with the aftermath of a breach that could have been avoided, or at least mitigated.