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Data Breaches: Part 2 – Consequences

7 mins read

This article describes 3 of the major possible consequences from a data breach.

Data is increasingly valuable to businesses. This can include customers’ personal confidential information, payment information, login information for both customers and the company, as well as private company documents. Unfortunately, criminals find that data valuable as well.

Information that was once relied on by businesses to serve their customers better can become the same information that cyber criminals are pursuing to use fraudulently, which puts an uncomfortable target on the backs of businesses. This target has become much larger since 2020/2021, as many employees have worked remotely from home, and may not have proper data protection measures in place. While small businesses may think they are safe as they are too small of a target, it is crucial to understand that these criminals see lack of preparation as a vulnerability for them to exploit. It is important that business owners understand the possible consequences of data breaches to properly assess and mitigate the risk. In this article we explain 3 of the major possible consequences from data breaches.

For more information on what a data breach is, see Part 1 of this series.

3 Consequences of Data Breaches:

1. Financial Loss

Financial loss is prominently the most hard-hitting and immediate consequence a business will experience from a data breach. According to the 2021 report from IBM Security, the average cost of a data breach in Canada is $6.75 million per incident, which is higher than the global average of $5.34 million.1 The costs associated with a data breach can include investigating the breach, the setup of incident response efforts, compensating affected customers, legal fees, and investment into new security measures.

Penalties may also apply in circumstances in which there is a failure to report the incident to the Privacy Commissioner of Canada, which is mandatory as of November 1st 2018 if the data breach is assessed as a Real Risk of Significant Harm (RROSH). It is important to understand the definition of a RROSH data breach, as not all data breaches fall under this category. Personal information data is protected under The Personal Information Protection and Electronic Documents Act (PIPEDA).

2. Damage to Reputation

With technology we live in a hyper-connected world, and news travels very fast these days. If someone hasn’t even heard of your company, they are likely to hear about it within days of a data breach. The damage to a business’s reputation from a data breach can be devastating. This includes the destruction of the company’s image as well as their brand from lost confidence, negative press, being associated with identity theft, and the general change of the customer’s view of the business. An impact study on data breaches done in the UK in 2017 showed that customers are quick to turn their backs on businesses which have suffered data breaches, indicating that 65% of consumers lost trust in the organisation, and 27% discontinued their relationship entirely with the organisation.2 This situation can be even more dire if the breach was avoidable with proper security measures in place.

3. Operational Disruption

During the aftermath of a data breach, business operations are often significantly impacted. The most common course of action in a data breach scenario is for a business to completely shut down operations until a solution has been found to allow for adequate time and proper focus. The disruption starts from the moment the data is compromised, through the investigation of how it occurred and what exactly was accessed, and continues during the recovery process.

Data breaches can even result in a complete loss of data including documents and records depending on the severity, which requires a long period of recovery for the business. This has a severe impact on the revenue of the business, and the longer operations are impacted the more likely it is that the company will lose customers. Sadly, many small businesses do not survive cyber-attacks that result in data breaches and the subsequent closure due to the consequences.

Conclusion of Consequences

The reality of data breaches is there can be significant consequences for businesses depending on the severity of the breach and whether the private information accessed is assessed as a real risk of significant harm (RROSH). The outcome tends to include some sort of financial loss, damage to the reputation of the company, and a disruption to operations. So, how can a business protect themselves and their security from data breaches? Prevention!

The next article in this series, Part 3, describes how to help prevent data breaches.

Download this resource Data Breaches: Part 2 – Consequences.

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1 Stephenson, Amanda. “Cost of Data Breaches in Canada Hit New Record in 2021: IBM.” CTV News. https://calgary.ctvnews.ca/cost-of-data-breaches-in-canada-hit-new-record-in-2021-ibm-1.5526127

2 “The Impact of Data Breaches on Reputation and Share Value.” Ponemon Institute. https://www.centrify.com/media/4772757/ponemon_data_breach_impact_study_uk.pdf

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