Any company that has customers needs to be on alert. The average cost of a privacy data breach has now reached $214 per record, according to the Ponemon Institute. And that is expected to rise. In addition, legal obligations and regulatory fines related to a breach are evolving, which creates a level of uncertainty about how to respond when a breach incident occurs. That uncertainty is potentially a very expensive risk.

A company’s board of directors is tasked to evaluate corporate risk – internal and external competitive, financial and customer. Each typically has a committee; each has a plan. A data breach of your customers’ (or even employees’) private information is one of the largest risks to an organization. Yet it is often overlooked. If you haven’t discussed this topic at a board meeting, add these questions to your next agenda.

Question 1:  How much private, information do we have and how sensitive is it?

Your customers and employees place a tremendous amount of trust in your organization to protect their information. However, this trust is being compromised on a daily basis. According to Identityhawk, the first six months of 2011 had 158 breaches totaling nearly 105 million individual’s records. These breaches were in all kinds of organizations including those with sensitive transaction data such as banks, hospitals and consumer electronics companies. When this compromised data includes health information or social security numbers, the impact of any breach can have serious legal implications, in addition to the reputational harm your organization will experience.

Question 2: What are the consequences if this sensitive information is compromised?

The recent breach of 77 million Sony Playstation customers has resulted in class action lawsuits because of negligence to protect users’ data. In addition, the FBI launched an inquiry and the U.S. Department of Justice is investigating. To date, the company has spent more than $170 million on customer support and legal fees.

Smaller breaches can have an equally corrosive impact on an organization. In March, five patients filed a lawsuit against Charleston Area Medical Center in West Virginia seeking class action status from the Circuit Court in Kanawha County for all of 3,655 affected patients of a breach that occurred in September 2010.

The loss of customer goodwill is one of the highest costs of data breach. In fact, more than 63 percent of breach costs are a direct result of lost business. Customers do not want to do business with organizations that can’t protect their information. The bottom line is that a data breach can unravel your business and destroy the very fabric of a hard-built reputation. Data breaches are much cheaper to prevent than clean up. The cost to reduce the risk before a breach can be as low as 10 percent of the cost to remediate a medium-sized breach.

continued @ 5 Questions Boards Should Ask About Data Privacy Risks – Forbes.