The Price Companies Pay for Poor Data Governance

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Intro | Financial costs | Operational inefficiencies | Reputational damage | Legal risks | Missed opportunities | Cultural impact | Conclusion | Info-Events | Programme Information | Contact

Data governance plays a critical role

In the age of digital transformation, data is widely regarded as a critical asset for any organisation, large or small. Today, organisations are leveraging data to drive growth, improve efficiency and enhance the customer experience. However, with the rapid influx of data, managing, securing and ensuring the quality of data is becoming increasingly complex. This is where data governance – the framework for managing data assets, ensuring data quality, data privacy and regulatory compliance – plays a critical role. Yet many organisations still operate without robust data governance. The consequences of this oversight can be significant, resulting in both obvious and hidden costs that can hinder an organisation’s success. This article explores the financial, operational and reputational costs of not having data governance, and why investing in it is a strategic imperative.

Financial costs

One of the most immediate and measurable costs of a lack of data governance is the financial impact of poor data quality. Without governance, data quality suffers from inaccuracies, inconsistencies and redundancies that accumulate as data flows through different systems. When people rely on faulty data to make strategic decisions, the likelihood of costly mistakes increases. For example, a targeted marketing campaign based on incorrect customer data could result in wasted resources, missed opportunities and even loss of customers. According to a Gartner 2022 study, poor data quality costs organisations an average of $12.9 million per year in inefficiencies, errors and missed opportunities.

Data breaches are another significant financial cost of poor data governance. Data governance includes protocols to ensure data security and compliance with privacy regulations such as GDPR, CCPA and others. Poor data governance leaves organisations vulnerable to data breaches, exposing sensitive customer and business information to cybercriminals. The financial impact of a data breach can be huge; in addition to potential fines for non-compliance, organisations must also cover the costs associated with customer notification, legal fees, and any operational downtime resulting from the breach. IBM’s 2021 Cost of a Data Breach Report found that the global average cost of a data breach has reached $4.24 million, the highest figure in 17 years. For smaller organisations, a breach could be catastrophic, potentially threatening their very survival.

Operational inefficiencies

Beyond the financial losses, the lack of data governance creates significant operational inefficiencies that disrupt workflows and reduce productivity. Without clear standards and protocols for handling data, employees waste time searching for data, verifying its accuracy or cleaning it up. Imagine an organisation where different departments store customer data in different formats in multiple systems with no integration. Sales, marketing and customer support staff can spend hours consolidating data, resulting in duplicated effort and frustration.

Inconsistent data also hinders automation efforts. Automation technologies, from predictive analytics to machine learning, rely on accurate and standardised data to work effectively. When data is unstructured or poorly managed, the insights generated are unreliable and the technology’s potential remains unfulfilled. These inefficiencies lead to higher operational costs, slower decision-making and stifled innovation – an opportunity cost that cannot be ignored in a competitive environment.

Reputational damage

In today’s connected world, a company’s reputation can be its most valuable asset. Consumers and stakeholders expect organisations to manage their data responsibly and protect it from breaches and misuse. Data breaches, inaccurate reporting and unauthorised data sharing due to poor data governance practices can damage an organisation’s reputation. If customers lose confidence in an organisation’s ability to protect their information, they are likely to take their business elsewhere.

A damaged reputation due to poor data governance goes beyond the loss of customers. Potential business partners, investors and regulators may view the organisation as a risky investment. A single data breach, for example, can damage stakeholder confidence and affect stock prices. In some cases, the reputational damage can be even more lasting than the financial loss, as it can take years for an organisation to rebuild its credibility.

Legal and regulatory risks 

As data privacy regulations proliferate around the world, organisations must comply with a complex web of requirements to protect consumer data. GDPR, CCPA, HIPAA and other regulations require organisations to collect, store and process data responsibly, often with severe penalties for non-compliance.

Data governance is essential to maintaining compliance with these regulations, ensuring that all data practices are aligned with legal standards. Without data governance, organisations may inadvertently violate these regulations and face penalties, lawsuits, and even court-ordered restrictions on their ability to collect and process data. Fines under the GDPR can be as high as €20 million or 4% of annual global turnover, whichever is greater. Non-compliance can be particularly devastating for small and medium-sized businesses, which lack the financial cushion to absorb such fines.

Missed opportunities and strategic limitations

Data is a strategic asset that provides insights to drive growth, improve products and enhance the customer experience. However, these benefits can only be realised if the data is accurate, accessible and actionable. Without governance, data silos develop across departments, isolating valuable information in disparate systems and preventing organisations from gaining a holistic view of their operations.

When data is poorly managed, it also limits an organisation’s ability to innovate. Inaccurate or outdated data undermines the effectiveness of analytics, machine learning and artificial intelligence initiatives. As a result, organisations are unable to leverage data-driven insights for competitive advantage. Conversely, organisations with robust data governance can rely on their data assets to make more informed decisions, target customers more effectively, and respond to market changes with agility.

 

Cultural impact: Erosion of trust in data

An often overlooked cost of poor data governance is the erosion of a data-driven culture. When employees encounter data inconsistencies or inaccuracies, their confidence in the data diminishes. They may resort to gut instinct or subjective decision-making, defeating the purpose of data-driven strategies. Over time, this scepticism can spread, making it difficult to foster a data-driven culture within the organisation.

A lack of data governance also hinders cross-departmental collaboration. With data inconsistencies and confusion over data ownership, collaboration suffers, fostering an environment of mistrust and inefficiency. Without a unified approach to data management, employees work in silos, reducing organisational agility and effectiveness.

The solution: Prioritizing data governance

The good news is that implementing data governance is a proactive measure that can prevent these costs. By establishing a clear data governance framework, organisations can improve data quality, ensure compliance, streamline operations, and foster a culture that values data accuracy and security. Data governance initiatives may require an initial investment in technology, people and training, but the return on investment is significant.

In addition, data governance is a dynamic process that evolves with changing regulations, technologies and business needs. When integrated into the company’s strategy, data governance becomes an asset that enables organisations to use data responsibly and effectively.

From financial loss to reputational damage, operational inefficiencies, legal risks and lost opportunities, the consequences of inadequate data governance touch every aspect of an organisation. A comprehensive data governance strategy is not just a best practice, it is a necessity. Investing in data governance not only protects an organisation’s data assets, but also enables it to use data as a competitive advantage, ensuring long-term success in a complex, data-intensive landscape.

We would like to thank Dr Dimitrios Marinos for his dedication and for sharing these valuable insights.

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