It is challenging to correlate a data problem to business risk or impact.
Poor data quality can have devastating risks on your business. Most organizational workers realize the impact of poor data quality, but it is hard for them to build a case for it on paper – whether they want to justify the investment in data quality improvement plans or convince their line managers to take action. This is why it becomes imperative to relate data quality issues to potential business risks and associated costs, so that you can get the attention of necessary stakeholders in time and implement possible fixes.
In this blog, we will look at how various data quality issues can introduce serious risks to your business and what possible measures you can take to overcome them.
Designing the data flaw – business risk matrix
David Loshin (in his book The practitioner’s guide to data quality improvement) introduces a very useful template for relating data flaws to business impacts and resulting costs. I have summarized the template in the table below:
|Problem||Issue||Business risk||Quantifier||Cost (yearly)|
|This is the data quality problem that resides in your dataset.||These are the various issues that can arise due to the data problem.||This is the impact the issue can have on the business.||This quantifies the impact in terms of a business measure.||This provides a periodic estimated cost incurred due to the business impact.|
|Misspelled customer name and contact information||Duplicate records created for the same customer||Customer service: Increased number of inbound calls||Increased staff time||$30,000.00 worth more staff time required|
|Customer service: Decreased customer satisfaction||Order reduction, lost customers||~500 less orders this year (as compared to estimated)|
|Accounts: Impact on cash flow||Increase in cash flow volatility||Cannot trust estimated cash flow about 20% of the time|
|Accounts: Increased audit demand||Increased staff time||$20,000.00 worth more staff time required|
This template precisely summarizes the kind of impact a data quality issue (something as small as a misspelled customer name) can have on your business. There are a few things to note about this template:
- A data quality Problem can give rise to multiple Issues. For example, a misspelled customer name or contact information can also lead to an incorrect customer in your database and losing the contact of an authentic customer.
- A single Issue can have multiple Impacts on various business verticals. In the table above, we saw how an issue had two impacts on Customer Service and two impacts on the Accounts department. The same issue can have more impact on these departments, or possibly more impact on other verticals, such as Sales, Marketing, Product, etc.
- The Quantifier is necessary to track down and there can be multiple quantifiers for a single Impact.
- The Cost is estimated and can be measured at any periodic time, for example, monthly, quarterly, yearly, etc.
The template mentioned above sets the stage for relating all kinds of data quality issues to estimated business risks. But just to help you fill up the template for your specific business case, I am listing the following aspects in this blog:
- The different types of data quality issues present in the main data assets of an organization, and
- The most common business risks incurred due to these data quality issues.
Let’s get started.
Data quality issues
Let’s take a look at the most common quality issues found in an organization’s datasets.
- Incorrect data: This is the data that does not conform to reality. It usually happens due to:
- Outdated information: Data tends to change over time and must be revisited and revised periodically.
- Human error: Typing errors, misspellings, and wrong data understanding are a few common reasons behind data quality issues.
- Ambiguous metadata: A lack of clear understanding about what certain data fields mean can cause you to store incorrect information.
- Duplicate data: This relates to storing multiple records belonging to the same entity.
- Incomplete data: This relates to leaving necessary fields empty in your datasets.
- Inconsistent formats and patterns: This relates to having the same data stored in multiple formats and patterns, rather than following the standardized format and pattern.
- Missing dependencies: Certain data fields are left blank since their dependent fields are empty. For example, an empty Zip Code may cause the supporting Geocodes field to be left blank.
- Different measurement units: This relates to storing the same data field in multiple measuring units, causing you to lack a standardized unit scale of measurement.
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Business risks associated with poor data quality
To estimate the impact of poor data quality on a business, you need to identify the role data plays in various business processes. This will help you highlight which processes are bound to mess up and cause delays if the data had any of the issues mentioned above. Below, I have listed the most common business risks associated with poor data quality.
1. Missed opportunities
Out of 3.64M leads generated each year, 45% of leads are filtered as bad leads due to duplicated data, invalid formatting, failed email validation, and missing fields. – Source
A business is prone to miss opportunities on multiple fronts if they have poor data quality across disparate datasets. For example, with poor lead data, you can miss an opportunity to identify potential prospects. Similarly, poor product information can strain your ability to effectively strategize your product development according to market needs. Competitors in your landscape will definitely take the lead in the market if they have more reliable and accurate datasets.
2. Lost revenue
Organizations believe poor data quality to be responsible for an average of $15 million per year in losses. – Source
This is definitely one of the biggest risks that your business can experience due to poor data quality. Incomplete or incorrect data (either it is customer contact information, product information, or ambiguity in financial dataset) can cause you to lose potential clients and incur losses in revenue as a result. If these mistakes are not connected to poor data quality management, you will have a hard time understanding why your team is unable to reach their annual sales or revenue targets.
3. Reduced operational efficiency and productivity
Most data teams in 2021 said that they do not use any data quality software and rely on manual data quality checks. – Source
When an organization’s workforce manually corrects data quality issues before using the data, it can put a strain on their efficiency and productivity rates. Many data analysts and data scientists feel that they spend more time preparing and cleaning data – as compared to performing analysis and forecasting reliable predictions about the business’s future. For this reason, your business needs an end-to-end system that utilizes technology to automate data quality validation and implement data quality processes in time. This can transform your data into making it usable at every stage of its lifecycle – without putting in any extra effort in runtime.
4. Customer dissatisfaction
Out of 37% of respondents working on customer experience for external-facing processes, only 30% proactively monitor data quality impacts. – Source
In this era, customers seek personalization. The only way to convince them to buy from you and not a competitor is to offer them an experience that is special to them. Make them feel they are seen, heard, and understood. To achieve this, businesses use a ton of customer-generated data to understand their behavior and preferences. If this data has serious defects, you will obviously end up inferring wrong details about your customers or potential buyers. This can lead to reduced customer satisfaction and brand loyalty.
84% of CEOs are concerned about the quality of the data they’re basing their decisions on. – Source
There are two ways to predict future market, demand, and need. One is to follow your instinct. The second is to look at past data to identify patterns and forecast the probable future. It is obvious that the second way is more reliable. But when it comes to business intelligence or market analysis, your insights are going to be as good as the input data. If the data fed to your analysis algorithm has multiple data quality issues, the identified patterns are going to be inaccurate – leading you to build an incorrect perception about the market’s future.
6. Reputational damage
The average consumer spends 13 minutes and 45 seconds reading reviews before making a buying decision. – Source
Poor product information is one of the biggest reasons that customers return bought products. The product was not how it was marketed on the website. But in some cases, poor data quality can cost you more than just returned products. In March 2017, Rescue 116 crashed into a 282ft obstacle – Blackrock Island off the County Mayo coast. Further investigations revealed that the CHC Ireland helicopter operator did not have “formalized, standardized, controlled, or periodic” system in place. Due to which, the database used by the operator to review flight routes was missing details about Blackrock Island.
It was reported that the crew was not warned of this obstacle in their flight route until they were 13 seconds away from it. The worst part is that a complaint was logged about this inaccuracy of Irish coast guard database 4 years prior to the incident, but no corrective measures were taken. In a world where every action is data-driven, such incidents prove that the cost of poor data quality is highly underestimated.
7. Lack of compliance
GDPR’s Article 5 states that personal data should be accurate and, where necessary, kept up to date. – Source
Data compliance standards (such as GDPR, HIPAA, and CCPA, etc.) are compelling businesses to revisit and revise their data management strategies. Under these data compliance standards, companies are obliged to protect the personal data of their customers and ensure that data owners (the customers themselves) have the right to access, change, or erase their data.
Apart from these rights granted to data owners, the standards also hold companies responsible for following the principles of transparency, purpose limitation, data minimization, accuracy, storage limitation, security, and accountability. It is very difficult to comply with these standards if the underlying data is not accurate, complete, valid, and secure. And a lack of compliance can limit your business operations – especially geographically.
8. Increased financial costs
IBM’s estimate of the yearly cost of poor data quality, in the US alone, in 2016 is $3.1 trillion. – Source
All these business risks mentioned above build up to one thing: it costs you more money than it would have if you had an end-to-end data quality management system in place. Whether you’re paying to hire more staff or constantly updating system processes to ensure data quality, you will not end up with the results you are seeking to achieve. It is best to invest in implementing a single, complete data quality management system that cleans and prepares all different types of data handled at your organization, so that the increasing financial costs can be controlled.
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