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The Financial Impact of Data Governance Tech: Costs vs. Returns

Authored by EncompaaS - Jan 8, 2023


The significance of data governance technology in modern business operations cannot be overstated. It serves as the backbone to secure, manage, and leverage data efficiently.

In this blog, we delve into the often understated financial aspects of investing in data governance technology – exploring not just the upfront costs but also the potential for immense long-term returns.

Main takeaways from this article:

  • Poor data governance can lead to financial repercussions such as data breaches, compliance penalties, and operational inefficiencies.
  • Investing in data governance technology supports broader organizational goals, enhances decision-making, and ensures compliance.
  • Although implementing data governance technology comes with upfront and ongoing costs, it can substantially reduce hidden costs associated with data management.
  • Robust data governance technology boosts operational efficiency, improves data quality for informed decision-making, and decreases compliance-related penalties.
  • EncompaaS provides a comprehensive data governance solution, leveraging generative AI to maximize returns on investment and enhance overall business outcomes.

The high cost of neglecting data governance

Reflecting on the financial reality confronting businesses today, the consequences of dismissing or neglecting the role of data governance can be disastrous. In an era where data has become the lifeblood of modern businesses, strategic data governance is no longer a mere business convenience—it has become a critical business imperative.

Three key adverse consequences of inadequate data governance stand out:

  • Data breaches: The importance of data protection can’t be overstated. Inadequate data management protocols heighten the risk of unauthorized and, in many instances, malicious access to confidential business data. A 2021 Varonis report paints a grim picture, revealing that over 64% of businesses discovered over 1,000 sensitive files accessible to all employees. Such indiscriminate data exposure opens the backdoor for potentially catastrophic data breaches.
  • Compliance fines: Regulatory compliance concerning data privacy and security has never been more stringent. Falling short of set standards and obligations can attract considerable fines and penalties. According to Statista, businesses worldwide faced an astounding €272.5 million in fines under GDPR in 2020. Ignorance or non-compliance with regulations, such as GDPR or CCPA, often translates into substantial financial setbacks.
  • Operational inefficiencies: The cost of poor data quality is not merely technical—it translates into tangible operational inefficiencies. Inaccurate or unreliable data can lead to misguided decision-making, ineffective business strategies, and stunted performance. Experian’s 2016 report quantifies the severity of the situation; it estimates that poor data quality costs U.S. businesses a stunning $3.1 trillion.

These findings underline the undeniable and significant financial implications of disregarding data governance. By neglecting proper data management, companies not only put themselves in the firing line for data breaches and compliance penalties but also create a breeding ground for operational inefficiencies. As such, the weight of compelling evidence should inspire businesses to reevaluate their approach to data governance, recognizing it as a pivotal operational requirement rather than an optional add-on.

Understanding data governance technology

The need for reliable, accurate, and readily accessible data has led to the development of data governance technology, a comprehensive toolbox designed to facilitate the effective management, protection, and utilization of business data.

This technology suite is a composition of three primary elements:

  • Data quality management tools: High-quality data forms the foundation of effective decision-making within a business. As an integral part of data governance technology, data quality management tools boost the integrity of the data a business relies on. They work by expunging duplications, rectifying inconsistencies, and mending formatting irregularities, ensuring business data’s accuracy, consistency, and reliability. These efforts result in a secure and reliable platform upon which informed decision-making can be based.

With AI seeping into every aspect of our lives, data quality management is no exception. Explore the transformative potential of adopting cutting-edge technology to elevate data quality and minimize risks, unlocking unparalleled insights to prepare for the era of Gen AI.

  • Compliance monitoring mechanisms: Various laws, standards, and guidelines regulate businesses globally. Their dynamism and complexity necessitate the use of mechanisms that can monitor and ensure compliance. The compliance monitoring tools embedded within data governance technology assist businesses in navigating this maze, managing data while aligning with all pertinent laws, and decreasing the risk of legal and financial reprisals. These mechanisms enforce business transparency and drive audit successes, thereby shielding the company from potentially crippling penalties and protecting its reputation.
  • Data protection measures: The surge in digital operations has exponentially increased potential threats to data security, elevating its importance. Data governance technology includes sturdy security measures like encryption protocols, controlled access features, and firewall technologies. They form an efficacious protective layer around sensitive data, shielding it from breaches and unauthorized access, thus upholding the businesses’ integrity and their stakeholders’ privacy.

These three integral components of data governance technology create a synergistic system that helps businesses align their goals and strategies. They play cardinal roles in achieving fundamental objectives:

  • Enhanced decision-making: Quality data is the seed for strategic thinking and informed decision-making. Conclusions drawn from accurate, reliable, and readily accessible data can guide superior strategic planning throughout the organization, creating a roadmap for success.
  • Elevated operational efficiency: Data governance solutions automate routine, data-based tasks, freeing up valuable resources and personnel. Streamlining these processes eliminates red tape, reduces human error, and enables the workforce to focus on strategic, revenue-yielding operations.
  • Sustained regulatory compliance: Amidst the quagmire of ever-transforming regulations, data governance technology, with integrated compliance tools, makes navigation less tumultuous. Such a system ensures a business meets all obligations, avoids hefty penalties, and secures its market reputation while significantly reducing regulatory friction.

Through its dedicated components and strategic applications, data governance technology ensures businesses reap the benefits of optimized data, improved operations, accountability, and efficiency.

The costs of implementing data governance technology

Investing in data governance technology can offer substantial returns in efficiency, compliance, and decision-making. However, it’s crucial to understand the financial outlay involved to make an informed investment. The costs can be typically divided into three categories: initial, ongoing, and hidden.

Initial costs typically include upfront expenses incurred during the system’s kickstart phase. These generally comprise:

  • Hardware: This involves the financial outlay required for procuring or upgrading equipment necessary for the new system’s proper functioning. Depending on the system’s complexity and sophistication, the hardware costs can significantly vary.
  • Software: This involves the costs associated with acquiring data governance tools. Depending on the specific business needs, these could be procured as standalone software solutions or parts of broader data management suites.
  • Integration: These costs pertain to the steps needed for seamlessly melding the new technology with your existing operational systems, ensuring interoperability and cohesiveness.
  • Ongoing costs are recurrent expenses necessary for maintaining a smooth functioning system over time. These include:
  • Maintenance: This means scheduled checks and ongoing system fixes. They are necessary to avert downtime or system crashes and ensure constant operational efficiency and reliability.
  • Updates: These refer to costs associated with software patches, upgrades, or complete sweeps – all intended to keep your tools compliant with evolving data policies and regulatory norms.
  • Training: Successful data governance requires an educated workforce. Hence, continuous staff training to ensure maximum utility from the adopted tools forms a critical part of the ongoing costs. Unforeseen expenses, or hidden costs, comprise those that may arise during and sometimes even after the process:
  • Potential disruptions: These are operational downtimes that might occur during system onboarding. Costs involved in managing and mitigating such disruptions also fall under this category.

  • Adjustment periods: Decoding new infrastructure can take time – both for employees and systems. The financial implications of this ‘settling in’ period should also be factored into your budgeting.

A nuanced understanding of these cost components is crucial for organizations to ensure accurate budgeting and a smoother transition while implementing data governance technology.

The returns on investment in data governance technology

Recognizing the importance of data governance technology is half the battle won. Investment in data governance yields returns that surpass figures alone, creating positive ripple effects throughout your organization. Let’s dig deeper into some of these substantial benefits:

  • Enhanced data quality and reliability: With an upgrade in data quality, decision-making improves exponentially. Businesses that leverage data governance technologies can expect to see a substantial cut in decision-making errors. As per Gartner’s study, incorrect data leads to 40% of business initiatives falling short of their targets. Therefore, a spike in data quality directly drives better decision-making, thereby escalating the overall business performance and creating a substantial impact on the bottom line.
  • Reduced compliance-related fines and penalties: With stringent regulatory norms, compliance is mandatory in today’s business landscape. And maintaining accurate and auditable data to keep your business compliant is no longer a luxury but a necessity. According to data from the Ponemon Institute, the cost of non-compliance in the U.S. has surged by 45% since 2011, averaging a whopping $14.82 million annually. Therefore, data governance technology not only ensures you stay on the right side of the law but also aids in avoiding hefty fines and penalties, providing a financial shield to your organization.
  • Increased operational efficiency: Replacing manual data management tasks with automation decreases the workload, accelerates processes, and reduces slip-ups. As supported by McKinsey’s research, businesses that base their decisions on data are 23 times more likely to attract customers, six times likelier to retain them, and an incredible 19 times more probable to realize profits. Implementing automation through data governance technology streamlines operations, boosting efficiency and profitability.

The above facts and figures imply that investing in data governance technology brings substantial financial gains by bolstering the efficiency and profitability of organizations, translating into a significant return on investment.

Balancing the scales: Finding the right data governance technology

When selecting the right data governance technology, the balance between understanding your organization’s financial capabilities and aligning it with the specific needs of your business is delicate and crucial. Several factors must be considered before making an investment, and it can feel overwhelming.

Nevertheless, these important considerations, when addressed appropriately, can guide you toward the right choice for your data governance technology.

Here’s what you need to consider:

  • Assessment of financial impact: An in-depth financial analysis must be conducted in the initial stages. This involves projecting potential costs against expected returns. The focus should not only be on the upfront costs of buying and implementing the system but also on the ongoing expenses of its maintenance, crucial software updates, and inevitable staff training. Additionally, potential business disruptions during implementation periods are hidden costs that should be forecasted and accounted for.
  • Technological compatibility: Understanding that different businesses have divergent needs is critical. Therefore, choose one that aligns seamlessly with your existing technology infrastructure in the sea of available data management solutions. This will guarantee a smooth integration process and prevent hitches in your day-to-day operations.

  • Scalability: Business growth inevitably evolves data governance needs. Therefore, deciding on a data governance solution that can easily scale with your growth trajectory will save unnecessary costs in the future. This could mean choosing software that starts small but can handle more data or more sophisticated procedures as your business expands.
  • User-friendliness: The ease of usage of these systems plays a big role. If the learning curve is steep and your team has to invest heavily in training, it is advisable to consider a solution that offers a user-friendly interface. After all, the performance and efficiency of data governance technology heavily depend on the skill level of the people who use it.
  • Vendor reputation: The vendor’s history and reputation reflect their reliability. Therefore, their customer service response time, the consistency of their system updates, and the general satisfaction level of their customer base will provide important insights. Ensuring they provide robust support for their products can significantly impact your business in the long run.

Maximize your investment with EncompaaS

Understanding and managing the delicate equilibrium between the costs and returns of data governance technology is critical to a business’s financial longevity.

EncompaaS, powered by generative AI, stands out as a comprehensive data compliance and privacy solution, offering significant enhancements to data quality and governance. The superior data governance strategy that EncompaaS facilitates can lead to improved operational outcomes.

As you explore tools to optimize your data governance approach, we encourage you to explore EncompaaS’s potential to maximize your investment and ensure favorable economic outcomes. Book a demo today!

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