What Is Data Classification & Why Is It Important?

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.

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

The main 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 then mitigate risk and manage data governance policies by safeguarding data based on specific criteria such as secrecy, sensitivity, and confidentiality.

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 levels of the enterprise. It helps businesses prioritize their data protection efforts, improving data 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 have to 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 data security policies can help organizations to identify the level of security and privacy protection that should be applied to enforce the right 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 of their data. 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 types of data 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 better understand who should (or shouldn’t) have access to what types of information, both inside and outside of 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 how much sensitive data your organization has, 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 specific 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 in a systematic manner 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 personal discretion and knowledge of labeling sensitive data, including its creation, editing, reviewing, and dissemination. Using this data classification type, a person can determine how sensitive each document is.

Data Protection Is Made Easy With Reciprocity ROAR

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

With Reciprocity ROAR, you don’t have to waste your time making sense of cumbersome spreadsheets. It allows businesses to organize and manage their data, as well as consolidate policies and procedures and automate routine compliance activities.

Use the integrated platform to successfully implement an effective data protection plan and mitigate data risks across your entire organization.

Schedule a demo with our team today to learn more.