Managing data risk: safeguarding your business

In the modern world, safeguarding against data risk should be a top priority for your business.

Here’s how to identify different types of data risks, conduct an assessment, and manage any potential threats.

What is data risk?

Data risk refers to the potential threats and vulnerabilities businesses face that can result in the loss, theft, corruption, or unauthorized access of sensitive information. Typically, these risks arise from cyberattacks, human error, system failures, or inadequate security measures. They can result in business or customer data being exposed or misused. 

Data risk should be a concern for any business or individual. A data breach can have devastating effects on an organization, resulting in significant business disruption, financial loss, reputation damage, legal penalties, and regulatory fines.

Data breaches are expensive. According to IBM’s Cost of a Data Breach Report 2024, the global average cost is $4.88 million. Equally worrying, 65% of all data breaches in 2023 occurred through internal actors, which means companies need to be especially vigilant about who they employ. 

Businesses handling customer data must comply with strict privacy laws (such as GDPR or CCPA) to avoid severe consequences. Individuals are also at risk of identity theft, with one million cases filed in 2023. 

To combat data risk, businesses and individuals should take steps to protect themselves by conducting a comprehensive data risk assessment process to identify vulnerabilities and implement appropriate defensive measures.

4 main types of data risks

There are four main types of data risks businesses and individuals should be aware of. Each requires different security measures to be put in place. 

1. Security risks

Security risks are some of the most significant threats to data integrity, confidentiality, and availability that organizations face.

Typically, these risks include cyberattacks such as data breaches, hacking, phishing, and ransomware attacks, like the one that law firm HWL Ebsworth experienced. 

Security risks occur when cybercriminals exploit vulnerabilities in systems to steal, alter, or lock sensitive data, which often results in them demanding ransom payments or selling stolen information. 

Security incidents can lead to massive financial losses, operational disruptions, and legal consequences, which is why it is important to have robust cybersecurity measures in place, such as encryption and multi-factor authentication.

2. Compliance risks

Organizations that handle personal or sensitive data must comply with a set of stringent regulations, such as:

• GDPR (General Data Protection Regulation)
• HIPAA (Health Insurance Portability and Accountability Act)
• CCPA (California Consumer Privacy Act)

Problems can arise if companies fail to meet their legal requirements relating to issues like data protection risks, privacy policies, and secure storage of user information.

Non-compliance can lead to severe financial penalties, lawsuits, and – potentially – restrictions on business operations. Perhaps most disastrously, failure to comply can erode customer trust and damage a company's reputation.

3. Reputational risks

While it can take decades to build a solid reputation, a data breach or privacy violation can undo all that hard work overnight.

Customers and stakeholders expect businesses to protect their personally identifiable information (PII). If it emerges that a company hasn’t done so effectively, customers don’t care about the why — they care about how it affects their lives and personal security.

Data breaches can severely damage an organization's standing and lead to a loss of customer trust, negative media attention, and a potential decline in profitability. 

Time and transparency are required to rebuild customer trust, and this can take years of hard work, which makes reputational risks particularly difficult to recover from.

4. Operational risks 

Operational risks are concerned with the potential disruption businesses could face in their daily operations through data loss, corruption, or governance failures.

Usually, these risks arise from human error, system failures, natural disasters, or insufficient data backup strategies. Losing critical data can result in significant downtime or inefficiencies, financial loss, and regulatory non-compliance.

How to conduct a data risk assessment in 4 steps

Conducting a data risk assessment is an essential way for businesses to identify vulnerabilities and understand potential threats so they can implement effective security measures to counter them.

A good way for them to do this is through a four-step structured approach.

Step 1: Identify data assets and flag sensitive information

Start by listing and understanding your critical data assets. This might include customer records, financial data, intellectual property, and employee information.

Once you’ve done this, identify where this data is stored, who has access to it, and how it is transmitted. You can also classify it based on sensitivity levels (for example, public, confidential, highly sensitive, etc.).

Step 2: Identify potential threats to your business

Threats to businesses come in different forms. Assess what types present the biggest risk to you. Industry-standard risk management frameworks like ISO 27005 (Information Security Risk Management) and NIST Risk Assessment Framework can help you do this.

Use them to determine your susceptibility to cyberattacks, human error, hardware failures, and/or insider threats, and map out how these might impact your data security.

A risk matrix can help you categorize these data risks as low, medium, or high based on factors such as potential risk of financial loss, legal implications, and damage to your reputation.

This step is essential because it helps prioritize which risks need immediate attention and which ones require continuous monitoring.

Step 3: Evaluate your existing security controls

It is always good practice to identify gaps or weaknesses in your existing security framework by reviewing the measures you currently have in place. These might include encryption, access controls, firewalls, and backup systems.

Compare your existing security framework to current industry best practices to determine if your company needs to take additional measures to shore up existing security controls.

Step 4: Develop a data risk mitigation plan

Having identified the risks and evaluated your existing security controls, create a strategy to negotiate them as best as possible.

Look at ways to implement stronger security controls and update policies as required. It is also worth focusing your attention on how employee training is conducted, and establishing an incident response plan.

This strategy should be constantly monitored and refined to account for aspects like new risks or changes in technology or regulatory requirements. 

Data risk vs data security 

It’s important to understand that data risk and data security are not the same thing. Although they are closely related, they serve quite different purposes when it comes to protecting sensitive information.

Data risk refers to the potential threats, vulnerabilities, and risks businesses or individuals face, which could result in them experiencing data loss, theft, corruption, or unauthorized access. It encompasses various issues, including cybersecurity threats, regulatory non-compliance, operational failures, and reputational damage.

Data security (also known as data protection regulations, data security posture management, and data privacy) focuses on the measures used to safeguard data from unauthorized access, breaches, and loss. These measures include encryption, firewalls, data accessibility controls, multi-factor authentication, and cybersecurity protocols.

How data risk and data security overlap

Data risk management and data security management are interdependent; without strong security measures, your vulnerabilities will increase significantly.

However, security alone is not enough because businesses must also consider factors such as compliance risks, human errors, and operational failures.

Therefore, for a data risk management strategy to be comprehensive, it’s recommended to include both security controls and risk assessments to identify and address potential vulnerabilities.

Common misconceptions

There is a common misconception that by implementing security measures, your organization’s data will have zero risk of being compromised. 

Even the most advanced security systems cannot eliminate all threats. New cyber risks are constantly emerging. In addition, the potential for human errors will always exist.

Another misconception is that data compliance equals security. Again, this is not always the case. Regulatory frameworks like GDPR and HIPAA set security standards, but meeting these requirements does not guarantee complete threat protection.

Data risk management: how to mitigate and manage risk

The best way to protect your company from cyber threats, compliance failures, and operational disruptions is to implement a strong data risk management strategy.

Robust security policies and controls

Every company benefits from clear security policies and procedures that apply to data handling, storage, access, and compliance with regulations, such as GDPR, HIPAA, and ISO 27001.

Security controls like firewalls, intrusion detection systems, and endpoint protection also help organizations prevent data breaches and unauthorized access.

Employee training

Human error is one of the leading causes of data breaches. So, it should come as no surprise that many companies view employee training as a critical part of their risk management strategy.

The better your staff is at identifying phishing attempts, following secure password protocols, and handling sensitive data appropriately, the more it reduces the risk of a business being affected by breaches.

Companies can also implement role-based access control (RBAC) and least-privilege principles to ensure their employees can only access data that is necessary for their specific roles.

Backup, encryption, and data governance

If a company loses its data or finds that it has been corrupted, it could have disastrous consequences for the business. Mitigate risk by committing to regularly backing up data.

While doing so, employ data encryption methods and data governance frameworks as a form of protection. This means that if your data was ever intercepted, it can’t be read without proper decryption keys.

Artificial intelligence (AI) automation

In recent years, artificial intelligence (AI) and automation have transformed the effectiveness of data risk management by improving a company’s ability to detect threats, quicken response times, and enhance the accuracy of their risk assessment practices.

For instance, AI intrusion detection and response systems and behavioral analytics can identify suspicious activities in real-time, which subsequently reduces the likelihood of breaches.

At the same time, automated monitoring tools help organizations adapt to regulatory compliance changes, and AI-powered incident response systems can quickly contain and mitigate risks associated with cyber threats.

Summing up

Data risk is an ongoing, ever-changing challenge faced by every business and individual in our digital world. It is important to understand not only the threats but also the data risk management and mitigation strategies that can help keep you and your business safe. 

By adopting robust security policies and strategies like enhanced employee training, data protection software, and the adoption of AI tools for risk management, your organization can substantially minimize its vulnerabilities.

RecordPoint’s cloud data solutions can strengthen your defenses against a broad range of security, compliance, operational, and reputational threats to ensure your business runs efficiently and effectively. 

Explore how our integrated platform can help you tackle your information management challenges. From data inventory to privacy and compliance, see how we can streamline your processes. Take the tour now.

FAQs

What are the biggest threats to data security today?

Some of the most significant data risks organizations and individuals face today include cyberattacks (such as ransomware and phishing), insider threats, regulatory non-compliance, and human errors.

How can businesses reduce their data risk?

Businesses can go a long way toward reducing their data risk level by implementing strong security policies, encrypting sensitive information, and regularly backing up data.

It’s also helpful to conduct regular risk assessments, train employees on cybersecurity best practices, and limit data access through role-based permissions. AI-driven security solutions and automated compliance monitoring are effective tactics, too.

Most importantly, if you have questions or concerns, get expert advice and guidance.

What role does AI play in managing data risk?

Artificial intelligence (AI) can help companies mitigate data risk management by using AI tools to detect and respond to threat intelligence in real-time.

These tools can improve threat detection accuracy and respond to risks more efficiently by analyzing vast amounts of data to identify suspicious behavior, automating proactive and reactive security responses, and assisting with compliance monitoring.

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