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Data: Liability or Asset?

Empowering the Information Enterprise

Thanks to ever-advancing software and hardware information applications such as radio frequency identification (RFID) tags and their electronic storage capabilities, organizations are awash in data. With this data comes responsibility - the responsibility to collect, process, generate and store data, which is nearly endless with such immense data volumes.

While capabilities such as RFID facilitate efficient inventory management or 24x7 online sales order processing, the value of the data changes once it has been stored. What is done with the data after it has been captured and stored determines whether it is a burden (liability) or a benefit (asset) to the organization.

It is important to understand that for generally accepted accounting principles, asset and liability are defined terms in the accounting profession. An organization cannot recognize data in its financial statements as an asset unless it has been purchased, such as the acquisition of a customer list from another organization. In addition, data cannot be recognized as a liability unless it is a debt or financial obligation to another organization that can be valued. For purposes of this article, the commonly used nonaccounting references of liability to represent burden and asset to represent a benefit are used.

Data as a Liability (Burden)

I've been involved in a great number of discussions with clients and industry peers about the concept of data being viewed and treated as a corporate asset. These conversations are helpful when trying to educate executives about the importance of data and to raise awareness about its benefits. However, I often see examples where data is not a corporate asset, but rather a liability. In other words, data is treated more like an obligation - a responsibility, a burden and a drain on resources.

For example, it is common for retailers to collect important customer data such as name, mailing and billing address, phone number, email address and credit card number as part of the process to conduct an online sale. After the sale has been completed, this information is typically stored for future reference so that customers can access their accounts to return merchandise, check status or even dispute. This information needs to be safeguarded as a good business practice to protect customers' information from potential misuse, such as identify theft.

Other reasons to safeguard information include compliance with various regulations that require protection of data like the Health Information Portability and Accountability Act (HIPAA) privacy rule. The privacy rule established a minimum federal standard for safeguarding the privacy of individually identifiable health information. Safeguarding data means that authorized individuals will securely store and access data in a manner that is appropriate or defined by regulations. Noncompliance can result in penalties, fines, restrictions and exposure to lawsuits.

The cost of storing data includes the physical hardware components, the corresponding software and the dedication of resources to safeguard it. If stored data is not used to derive additional usage, analysis or insight, then it is a burden to the organization and can be viewed as a liability.

Data as an Asset (Benefit)

Stored data usually starts out as a liability. The usage of stored data in a productive manner, on the other hand, can be viewed as turning it from a liability into an asset. But merely using stored data does not mean it is an asset. Data that is used to generate revenue, identify potential new business opportunities, provide for cost savings or avoidance of expenses or provide some economic benefit to the organization is viewed as an asset.

For example, the customer data that was collected from the online sales process can be analyzed for customer segmentation by demographic and geography representation to identify buying patterns or effectiveness to marketing campaign efforts. With the analysis, future marketing campaigns can be tailored to the customer groupings that are most likely to purchase products from the company. In addition, other activities or programs can be developed to foster customer loyalty - and in return help generate new business and revenue for the company. Customer data is just one set of data that can be turned from a liability into an asset. Many more sets of data exist in all organizations that have untapped or unrealized potential value.

Every organization has data that can be could be viewed both as a liability as well as an asset. Knowing what data is available, the quality of it, how to remediate it, how to access it and most importantly, what to do with it directly impacts the classification of it: liability or asset. Individuals and organizations that have established an information environment utilizing data warehouse and business intelligence technologies are well positioned to realize the greatest value from their data. They have an information environment that is based upon business requirements and can quickly respond to future information needs to provide economic benefit to the organization.


Jonathan has over 20 years of experience designing, developing and implementing information management solutions. In December 2007, he completed his employment agreement with Hewlett-Packard and is now focused on mentoring start-up companies and investing. While at HP, Jonathan was the Public Health Practice Area Leader within the Information Management practice. In December 2006, HP acquired Knightsbridge Solutions where Jonathan was a member of the executive management team and board member. Prior to Knightsbridge, he was the chairman and co-founder of BASE Consulting Group (acquired by Knightsbridge in 2003), an advisory business services manager at Price Waterhouse, and a senior accountant at Ernst & Young. He is a Certified Public Accountant in the State of California and a Certified Information Technology Professional. Jonathan earned a degree in Business Administration from the University of California, Berkeley. He can be reached at jonathan.wu@cal.berkeley.edu.

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