Data classification refers to the process of analyzing data (both structured and unstructured) and then organizing that data into defined categories based on its contents, file type, and other metadata characteristics. This underpins adequate data security and data management programs in an organization.

For example, a company could classify its data as restricted, private, or public. Public data would be the least confidential category, with the lowest security requirements; restricted data would be the most sensitive data, with the highest requirements.

The primary purpose of data classification is to help organizations answer questions about the nature of their data – what do we have? How important is it? – so that the organization can mitigate risk and manage data governance policies by safeguarding data based on specific criteria such as secrecy, sensitivity, and confidentiality.

Data Classification Defined

Data classification organizes internal and external data into categories based on their level of sensitivity and business value. By labeling confidential data sets with classification tags like “top secret,” “internal,” or “public,” organizations can consistently apply appropriate cybersecurity controls, access protocols, storage guidelines, and retention policies. 

Data classification allows for tailored data protection and management of sensitive information like Personally Identifiable Information (PII) or Protected Health Information (PHI) based on its importance to the business.

Why Should Data be Classified?

There are several key reasons organizations should take the time to classify their data assets:

  • Identify internal confidential data like customer social security numbers for protection
  • Enable data access roles and authentication based on classification levels
  • Determine regulatory compliance scopes for the General Data Protection Regulation (GDPR), Health Insurance Portability and Accountability Act (HIPAA), and other data privacy laws
  • Reduce storage costs by applying tiered backup plans per classification type.
  • Simplify and improve eDiscovery for legal requests around sensitive data
  • Support data retention schedules aligned with data sensitivity

In short, formal data classification policies underpin adequate information security and data management governance strategies.

Why Is Data Classification Important for Businesses?

For most businesses, data classification is a necessary data hygiene exercise.

Data classification ensures that companies comply with regulatory compliance obligations to develop data-centric security across all enterprise levels. It helps businesses prioritize data protection efforts, improving security and regulatory compliance. Classification also helps to reduce costs, boost user productivity, and facilitate prompt decision-making by eliminating unnecessary data.

In addition, sensitive information should be (and often must be, by law) stored securely and deleted from company databases after a defined period. Businesses must create data categories and apply security rules to avoid breaking the law.

Many businesses have sensitive data in their networks without knowing it. Implementing data classification and security policies can help organizations identify the level of security and privacy protection that should be applied to enforce the proper access controls.

What Are the Advantages of Data Classification?

Storing massive amounts of data in an unorganized manner is both expensive and risky.

Organizations can use data classification to maintain confidentiality, integrity, and availability. Here’s a closer look at the benefits of data classification.

Well-Rounded Data Security

Data classification helps to protect your valuable data and improves data security. Once you identify the different data types in your network, you can separate your sensitive data from general data. In turn, this allows you to:

  • Prioritize your security measures
  • Adjust your security controls based on data sensitivity
  • Find out who can access, modify, or delete data on your network
  • Assess all risks and threats, such as the business impact of a breach or ransomware attack, and so on.

Usage Rights

Data classification informs you about the sensitivity of your data. That allows you to understand who should (or shouldn’t) have access to what types of information, both inside and outside your organization.

Increased Awareness

Data classification makes your employees more aware of the types of information they handle and the data’s value. They can also recognize their obligations in protecting these documents to prevent data loss or compromise intellectual property.

Furthermore, increased awareness leads to optimized security budgets. When you have a clear view of your organization’s sensitive data, you’re in a better position to comprehend whether you’re overspending or underspending on the amount of specialized secure storage your company purchases.

End-User Empowerment

Most data leaks can be avoided if companies implement an effective data classification solution.

Classifying data empowers users to bring security to the front of your organization. When you add visual labels to headers and footers, you increase user awareness, which helps employees to be more security-focused. This knowledge will help them make better decisions about handling data, such as not sharing sensitive content via email, cloud services, or USB drives.

Improved Regulatory Compliance

Businesses are required by law to protect specific types of data, such as the personal data of European Union residents or credit card information. Data classification allows you to identify data subject to particular regulations so you can apply the required controls and pass audits.

Below are several data privacy regulations where data classification can help with compliance:

  • EU General Data Protection Regulation. You can uphold the rights of data subjects, including retrieving required documents about specific individuals, to satisfy data subject access requests.
  • HIPAA. Storing all your sensitive health records will help you implement security controls for proper data protection.
  • PCI DSS. You can identify and secure consumer financial information used during credit card transactions.
  • ISO 27001, Classifying information based on sensitivity and value helps to meet requirements for preventing unauthorized information disclosure or modification, which is the objective of this ISO standard.
  • NIST SP 800-53. Categorizing data helps federal agencies build and manage their IT systems more effectively.

What Are the Types of Data Classification?

There are three standard approaches to data classification.

  1. Context-Based Data Classification
    This data classification type prioritizes the context of the data, such as:

    • The creator of the data
    • The location where the data is created or modified
    • The application of the data, such as healthcare or financial software
    • Other variables that affect data
  2. Content-Based Data Classification
    In this classification type, the contents of each file serve as the basis for categorization. It uses deep inspection to examine and interpret data to identify personal, sensitive, and confidential information before determining the appropriate classification label to apply.
  3. User-Based Data Classification
    This classification method relies on the user’s discretion and knowledge of labeling sensitive data, including its creation, editing, reviewing, and dissemination. Using this data classification type, a person can determine how sharp each document is.

The Data Classification Process Explained

The data classification process typically involves these key steps:

  1. Survey data assets: Run data discovery assessments to catalog and analyze organizational data.
  2. Define taxonomy: Create categories, labels, and policies aligned to regulatory and business data objectives.
  3. Classify data: Leverage tools and manual reviews to assign appropriate classifications to sensitive elements like credit card numbers.
  4. Apply & enforce policies: With formal classifications set, layer storage, backup, access control, and retention rules per defined policies.
  5. Review classifications: Run periodic reports to validate that classified internal data remains properly categorized or needs re-evaluation.

Ongoing governance ensures classifications stay current and controls align to evolving regulatory and risk landscapes around PII, PHI, intellectual property, and other critical data types.

How Can My Organization Protect Critical and Sensitive Data Resources?

Organizations should take a multi-layered approach to securing their most important data assets, including PII, PHI, intellectual property, and other confidential information:

  • Develop a formal data classification and categorization program with stakeholder input on taxonomy and policies
  • Discover, classify, and label sensitive data using automated tools integrated with data lakes
  • Apply encryption, multi-factor access controls, backups, and retention rules according to classification levels
  • Route classified confidential data to secured storage platforms or repositories with limited access
  • Mask or tokenize sensitive data used in non-production use cases
  • Log and monitor access attempts to classified resources to detect unauthorized activities
  • Train employees on proper handling procedures per data classification levels
  • Continuously review and update classifications as needed as new sensitive data is created

These steps allow organizations to apply proportional safeguards to their mission-critical information based on sensitivity. It reduces the risk of catastrophic data breaches while enabling business use of data where appropriate.

Data Protection Is Made Easy With ZenGRC

ZenGRC is an end-to-end risk management solution that helps you efficiently meet your customer’s privacy expectations.

With ZenGRC, you don’t waste time making sense of cumbersome spreadsheets. It allows businesses to organize and manage data, consolidate policies and procedures, and automate routine compliance activities.

Schedule a demo with our team today to learn more.