Around the world, many businesses like yours have benefited from adopting third-party vendors or service providers. Either as a small business or a giant corporation, third-party vendors give room for your organization to focus on its highest value activities while other aspects are outsourced.
Nevertheless, outsourcing is not without its own risks. These risks may affect your organization depending on the weight of damage. As your organization grows in size, it also grows in vulnerability. So, it’s important to be mindful of third-party relationships as they are crucial to the success and sustenance of your firm. It’s imperative that you invest in a vendor risk assessment to mitigate third-party risks and ensure business continuity.
Familiarize yourself with a third-party risk management framework before choosing a vendor to help manage your cyber risk.
Third-parties include your vendors, business channels, marketing partners, and anything else that has access to your firm’s network. While employing outsourced vendors is not bad in itself, some often operate with less robust cyber protection that leaves your company at risk of a cyber breach.
In a 2018 survey by PricewaterhouseCoopers 63 percent of all cyber-attacks could be traced either directly or indirectly to third parties. Consequently, compliance to a third-party risk management framework should be the top priority in the scheme of things.
What’s Third-Party Risk Management (TPRM)?
Third-Party Risk Management (TPRM) is the process of evaluating and regulating risks in relation to outsourcing to third-party vendors or service providers. This could include access to your organization’s data, intellectual property, finances, and other sensitive information. A survey by Bomgar revealed that on average, 89 vendors access a company’s network every week.
Therefore, due diligence is needed to determine the overall eligibility of a third-party and how they can keep your company’s information secure. TPRM is the process of gathering relevant and reliable information about a third-party. This process of reviewing, observing and managing communication is continuous and not a one-off, but over the entire vendor’s work-cycle.
Some vendors may include cloud service providers, payment processing providers, or supply chain partners, all of which must be considered during third-party risk management. Some typical risks are:
- reputation risk
- operational risk
- transaction risk
- compliance risk
- information security risk
Every organization should have third- and fourth-party risk management as the basic part of their overall information security risk management process. Apart from the in-house team, this must include all third- and fourth-party providers. With the rise of cyber-crime, it’s no longer enough to just ensure that your in-house network is secure. You must also ensure all outsourced partners operate on secure networks.
Your risk management should take into account third- or even fourth-party service providers who will have access to your data without being shielded by your internal risk management process. Even in your company’s strategy, initiative, or budget allocation, third-party risk management should be a priority. It’s sad to note that only 2% of nationwide enterprise IT and security professionals consider third-party access their top priority in terms of IT initiatives and budget allocation.
Overlooking such risks eventually leads to your company bearing unforeseen costs. According to a Ponemon report in May 2016, organizations spent $10 million responding to third-party breaches over a 12-month period.
Any third-party risk management framework is aimed at reducing the likelihood of data breaches, vendor bankruptcy, operational failures, and to meet regulatory requirements. These risks are usually caused by poor implementation of required security protocols, lack of in-depth personnel vetting and other security vulnerabilities exposed to cyber-criminals.
Why Do You Need a Third-Party Risk Management Framework?
It’s not enough to be focused on operational activities like performance, compliance, delivery times, quality standards, or even KPIs. It’s critical for your organization to focus on all aspects of risk. Secure your organization on all sides with a third-party risk management framework.
Also, organizations are targets of cybersecurity attacks and data breaches from time to time, mostly going through third-party providers who are easy windows for entry. Regardless of your organization’s risk profile, establishing a third-party risk management framework is a critical part of internal audit and reducing risk exposure.
Most times, top management in organizations aren’t fully aware of the risks that involve third-party vendors. Understanding the scope of possible security risk and cyber risk gives you the opportunity to make calculated organizational and operational decisions regarding this.
What’s Third-Party Risk Management Framework?
The first crucial step your organization should take in order to decrease risk and boost security is the implementation of a third-party management framework. Remember that the assessment should not only be a part of your internal process but also factor in the supply chain, service providers, and third parties.
The choice of a TPRM framework should be based on the companies’ structures and risk profiles, as operations and company size differs. Just as the US Federal Office of the Comptroller of the Currency puts it in its guidance for banks and savings associations, your company should adopt risk management processes in accordance with the level of risk and complexity of your third-party relationships.
Since the early 2000s, industries and government bodies have expanded regulatory compliance rules that analyze companies’ risk management policies and procedures.
Several organizations have developed some risk management standards like the National Institute of Standards and Technology (NIST), the International Organization for Standardization (ISO), HIPAA, and PCI-DSS standards.
These standards are widely recognized for their efficiency as they are designed to help organizations identify certain threats, assess specific vulnerabilities to determine the risk involved, seek out ways to mitigate the risk, then adopt risk reduction efforts according to your organizational strategy.
Both the NIST and ISO provide risk management frameworks that can be used in the assessment process of any third-party risk management program, regardless of the organization’s size or target sector. NIST third-party risk management aids in the identification of opportunities and threats and allows companies to effectively allocate and use resources for risk remedy.
In general, there are several best practices for any risk management framework:
- Take inventory of all third parties your organization has a relationship with.
- List cybersecurity risks that your organization can be exposed to through third-party vendors.
- Identify and categorize third parties by risk and focus on all critical activities.
- Design a due diligence testing pattern to stay focused on third parties with the most critical cybersecurity risk.
- Establish a solid decision-making team for governance and framework decisions.
- Review crucial activities to set a benchmark for the third-party risk management framework.
- Identify three lines of defense including owners, third-party oversight, and an internal audit team.
- Establish contingency plans in the event of a data breach or when a third-party is deemed below quality.
A foolproof third-party risk management framework can safeguard a company’s clients, employees, and the strength of their operations. The level of risk that companies face in this present world is staggering. Because of this, being proactive in approach is key to finding third-party management for a risk assessment and vulnerability management program.
Working with a third-party security provider like RSI Security that understands this is one step toward ensuring the security of your assets and information.
For proper third party risk management, RSI Security is an experienced partner to help you manage critical information systems and data that your partners and vendors are involved with.
If you would like to find out more information about how a third-party risk management framework can improve your security posture, send a message to RSI Security today.