Businesses rely on their third-party suppliers to deliver products or services on time, while also keeping costs down and improving profitability. However, as beneficial as third-party relationships are to the organization, it does come with risks. These include security breaches and data thefts that often result in non-compliance penalties and loss of consumer trust. Supply chains can also be interrupted.
In response to cybersecurity breaches along third-party supply chains, organizations are creating third-party risk management policies and procedures. Once the risk management strategy is ready, many businesses are finding it difficult to implement it by themselves across their third-party suppliers.
In this guide, you’ll learn what the right third-party risk management policies and practices are, along with helpful tips on how to implement them.
What is a Vendor Risk Management Policy
In simple terms, a vendor risk management policy identifies any suppliers that could be a target for cyberattacks. Once identified, it defines the controls necessary to minimize identified vulnerabilities. A comprehensive vendor risk management strategy will also assess which third-party suppliers should have access to protected data.
Creating a risk management policy for third-party vendors can be time-consuming, especially for large, global corporations. There are a few tips that can make it easier if the company does not want to bring in outside resources – cybersecurity professionals.
The first step is to compile a list of all third-party supplies. This includes both product and service providers. Once the list is completed the next step is to determine vendor access to the network. This includes access to,
- Personally identifiable information (PII)
- The company’s internal network
Third-party vendors that need access to PII and/or the internal network should be classified as “critical assets”. This is where businesses should focus on cybersecurity monitoring, along with other practices. The reason for the focus on these suppliers is that if a data breach occurs on their end, it could cripple the entire network.
Included in the risk management policy are the practices and protocols that the vendor must implement. For example,
- Service level agreements (SLAs)
- Complete list of vendor compliance regulations
- What vendor controls are acceptable
- Liability of the vendor in the event of a cybersecurity breach
- Agreement to terminate the contract if cybersecurity protocols are not met
- An established disaster recovery plan and redundancies in place
- Oversight from a board or upper management when needed
Including these items in a third-party supplier risk management plan will help make it easier for all vendors to follow the same protocols. What the business expects in the way of cybersecurity from the vendors is clearly outlined reducing the chance for a data breach.
How to Implement Third-Party Risk Management Policies and Procedures
All businesses differ and this includes cybersecurity needs. Some policies and practices might not apply or be broad enough to cover all the risks. However, there are some factors that all third-party risk management policies have in common.
Assess and Manage Third-Party Vendor Risks
Third-party vendors often bring risks, usually without knowing it. These risks pertain to all vendors and service providers that have a relationship with the business.
A comprehensive risk management strategy accounts for all risks. These include process and political risks, along with potential system information failures. Contract, legal, and non-compliance are other risks that need to be assessed.
Businesses will want to create contracts that clearly outline the rights and responsibilities of third-party vendors. Cybersecurity policies should be clearly explained, along with the controls suppliers are expected to implement.
Due Diligence and Third-Party Screening
Whether a business is looking to add a third-party vendor or already has their supply chain set-up, it’s important that companies perform due diligence. All third-party contractors, regardless of their role, should be thoroughly screened before network access is authorized.
This step should be the basis of a company’s third-party risk management strategy. It will include assessing and rating the supplier’s level of risk, along with screening all documents, contracts, and certifications. By continuing to monitor third-party vendors, companies will be able to make informed decisions regarding current and future cybersecurity practices.
Due diligence doesn’t end once the cybersecurity protocols are implemented. It needs to continue as long as the company has a relationship with the supplier.
Pay Attention to Fourth-Parties
This often applies more to larger companies with hundreds of third-party vendors. On occasion, the third-party may subcontract a fourth-party. If the subcontracted supplier does not follow the same cybersecurity protocols, it can be a potential way for hackers to access the network.
Hackers may be able to breach the fourth-party and laterally work their way up through the system, eventually reaching protected data.
Contracts between companies and vendors need to address fourth-parties. If third-party associates are allowed to sub-contract, the fourth-party must implement and maintain the same cybersecurity protocols as the parent company.
Even if a company didn’t know that a fourth-party was involved, and the cause of a data breach, it will still be held responsible and face potential penalties.
Upper Management is Responsible for Third-Party Oversight
It’s not uncommon for upper management to pass along monitoring jobs to lower staff, but this can result in a data breach. Ultimately, it is the responsibility of upper management to monitor third-party cybersecurity protocols. It’s important to remember that only the top leadership will be penalized if a data breach occurs.
Management will want to create a transparent relationship with all third-party suppliers. This includes requiring routine reports on security protocols to be submitted by everyone on the supply chain.
Assess Cybersecurity Effectiveness
New cyber threats are always appearing as hackers continue to try and find ways into a network. Even when third-party risk management policies and procedures are implemented and proven effective, it doesn’t mean companies can relax.
Businesses also need to implement processes that ensure the effectiveness of the risk management program. It should include,
- Cybersecurity policies
- Conduct codes
- Cybersecurity processes and controls
- Assessments and audits
- Compliance questionnaires/surveys
Companies need to have a 360-degree view of all their cybersecurity practices. The protocols should also be evaluated for effectiveness at regular intervals.
Create a Mature Risk Management Process
Businesses often have various departments monitoring different assets along the supply chain. While this does speed up monitoring and assessments, it also creates a potential vulnerability in a company’s cybersecurity program.
When different departments are monitoring various third-party suppliers, it is easy for potential cybersecurity threats to go unnoticed or unreported. Companies need to have a dedicated department for third-party risk assessment and monitoring. The scope of the department’s job should be well-defined. This will include the processes for
- Risk assessment
- Third-party screening
- Performance management
All third-party information should also be readily available to encourage accountability and monitoring to prevent anything from being overlooked.
Smaller companies with five or fewer third-party suppliers probably won’t need technology to strengthen risk assessments. Larger companies will find that technology is key to monitoring and managing multiple third-party platforms.
Risk management software can streamline monitoring and assessments. It will also manage compliance, performance, and audits. Third-party information can also be mapped and tracked. A database for documentation can also be created with software.
With advanced technology, companies will be able to consolidate third-party information and use it to back-up decisions regarding network access. The software also works with other sources to compile and validate third-party data regarding their compliance with industry cybersecurity standards.
Benefits of Third-Party Risk Management Policies and Practices
It does take time and expense to implement an effective risk management program for third-party vendors. This is true whether you hire an IT professional or use company resources. Regardless of how difficult or disruptive it might be, there are several benefits to implementing third-party risk management policies and practices.
Consistent Supply Chain Operations
During a third-party risk assessment, companies often discover potential problems that could negatively affect the business. For example, if only one vendor supplies a particular product or service vital to company operations, a temporary shut down due to hackers could prove disastrous.
To mitigate this risk, companies should broaden their supply chain to include alternative suppliers. These additional vendors will have to meet industry cybersecurity compliance regulations.
Improved Customer Relations
Recent data breaches and the ensuing fines, penalties, and civil lawsuit settlements have shown that industry regulators and consumers aren’t tolerant of successful cyberattacks. Businesses depend on their customer base for success. If a data breach occurs trust can be lost.
A comprehensive risk management program not only shows customers that a business takes cybersecurity seriously, but it also keeps operations running smoothly. Customer orders will be filled on time and inventory fully stocked. When a company is running smoothly, customer satisfaction improves.
Bottom Line Growth
Profits will increase when business operations are running smoothly, and that’s the bottom line. An effective risk management program will reveal inefficiencies in operations that could be wasting money. It will also identify risks that could affect company finances.
Create Reusable Information
When the third-party risk management policies and procedures are being implemented there will be discussions with a variety of employees. Each of these discussions and planning sessions will generate information pertaining to potential cybersecurity risks. Even if the threat doesn’t happen immediately, this information can be reused to shore up the vulnerability.
This not only saves companies time in responding to a cyberattack, but it can also prevent a data breach.
Prevent Regulatory Fines and Penalties
The primary reason businesses want to focus on third-party risk management is to avoid costly fines and penalties if a data breach occurs. The fines and penalties for a lapse in cybersecurity will vary, and the severity depends on several factors. One of these is if all required cybersecurity protocols were properly implemented, monitored, and maintained. This applies to any third-party vendor the company has a relationship with.
Ultimately, it will be the company that is held responsible if the data breach is the result of a third-party supplier’s negligence.
There are vendors that will help businesses implement third-party risk management policies and procedures but it’s also possible for companies to do it themselves. Reducing cyber risks is critical for a business’s success and this includes third-party suppliers. While they are an important part of the operation, these vendors also come with risks. A comprehensive risk management plan will not only highlight these risks but also help define solutions to resolve them.
Companies that have questions or need assistance implementing their third-party risk management policies and procedures can get expert advice from the professionals at RSI Security.