Data Risk and Reward: A Thought Experiment

How do you value your company’s data? Be honest…

How do you account for the value of your business? Depending on your worldview and expertise, you might take this question very literally, as in a balance sheet sense, or more viscerally, e.g. “our greatest assets are our people.” Regardless of how you think of value, many of us can easily rattle off the world’s most valuable traded firms. And, with the exception of Aramco and Visa, they’re predominantly the big tech firms: Apple, Microsoft, Amazon, Alphabet, Facebook, Tencent, Tesla, Alibaba.  (1)

But WHY are they so valuable? Consider that the balance sheet assets of these top firms are mostly intangible. In fact, intangible assets make up 74-94% of total assets for these large tech firms. (2) For those of us who aren’t finance gurus, this has traditionally meant things like goodwill, brand value, copyrights, patents, intellectual property, and so on. Now, where things really get interesting is in the disclosure of said assets. Only 3% of the intangible assets for these firms are even identified at all – the rest go undisclosed. (3)

Wait – WHAT? Are we literally saying that 97% of the 74-94% intangible assets of the world’s most valuable firms are entirely shrouded in mystery? Yes. 

Apparently, there’s a bit of a swell in the accounting community over this – many want improved standards for intangible asset disclosure. Others think the disclosure standards will never change. (3) Hold that thought… 

NEW QUESTION! How do you value your company’s data? Be honest… OK, maybe you think you don’t. 

Or do you? Do you carry cyber insurance? What’s the premium? What’s the policy value? Why? If every last scrap of data in your company were suddenly held ransom by the bad guys, what would you be willing to pay to get it back? And if you refused to pay the ransom, what would it cost to start over from scratch? Would your insurance actually cover the cost? 

See the connection? Suddenly your data seems extremely valuable. But it’s completely intangible in accounting terms, and it’s certainly not easy to value accurately for disclosure, even if you wanted to, precisely because there’s no standard today. But who might stand to benefit from the standardized valuation of company data?  Maybe you and your insurance carrier?  What about the disclosure of that valuation? Investors and market analysts, perhaps?  Skeptics doubting there will ever be intangible asset disclosure standards might take note that ransomware damages have risen from $5B in 2017 to a projected $20B in 2021. (4) Not too shabby. Think that will keep going up? Investors may eventually catch on in a mainstream way and demand to know more about traded firms’ risk of a data breach. Wouldn’t you? 

Here you might conclude that your data is something to be feared, locked down, governed, controlled by a select few, or immediately purged as an unacceptable liability. Well, in some cases, perhaps!  At least, to a degree. But focusing only on that would be missing the bigger point, asking yourself: How do the world’s most valuable tech firms manage their data?  The answer would be: Very well, thank you! They recognize their data for what it is, both asset and liability. In fact, in a very real (but intangible) sense, these companies are almost nothing but data – used very thoughtfully – by smart, innovative people.    

What does this mean for the rest of us?  It means we need to develop a strategy around managing data for both its inherent asset potential (or “data monetization”), as well as its inherent risk potential. And not only risk from an information security perspective (the purview of the CIO), but also from a true financial risk management perspective (the purview of the entire C-suite and Board of Directors). 

These thought experiments have all been to prepare you for the following blunt advice: stop only giving lip service to the importance of data.  Enough.  Figure out how to value and leverage the upside in your data to trounce your competition. And mitigate data risk as you would with traditional liabilities.

In short: Use data and prosper. Lose it and suffer. Do nothing with it, and languish (which could be more depressing than losing it). 

Co-Written By:

Josh Pack - Keller Schroeder Principal Consultant Data Strategy


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