Business always involves some level of risk. Any organization that avoids risk is being too conservative, hereby, limiting their potential for growth. Organizations have traditionally viewed risk as something that has to be avoided, and they spend significant resources to secure critical data and systems.
However, when approached in the right way, risks play a vital role in driving business performance. As a business grows, the ability to manage third-party relationships becomes more critical to success. Organizations that rely exclusively on their third-parties for improved profitability… Want to bring in a partner to help manage your cyber risk? Read on to learn more about the challenges you’ll face and how to overcome them.
Risk Management In Business
Every organization faces the risk of unexpected and harmful events that can cost it lots of money or even permanent closure. A risk is a future event caused by internal or external vulnerabilities that may occur, which will have an effect on the performance of an organization. Risk management allows organizations to attempt to prepare for the unexpected by minimizing risks and extra costs before they happen.
Risk management is the process of identifying, assessing, and controlling threats to an organization’s earnings and performance. These threats could stem from a wide variety of sources. Due to the wide range of security threats and data-related risks, risk management strategies to alleviate them, have become a top priority for digitized companies.
What Is Third-Party Risk Management?
Over 60 percent of data breaches are linked either directly or indirectly to a third-party (per Soha Systems, 2016) but third-party risk management programs are solely focused on compliance. Third-party risk management is critical for businesses, but a lack of continuous monitoring, consistent reporting, and other blind spots are creating challenges that could leave organizations vulnerable to data breaches and other consequences.
Third-party risk management is the process of ensuring the use of service providers and third-parties doesn’t create an unacceptable potential for business disruption or a negative impact on business performance. Because third-parties are technology partners, they have complex IT solutions, lack of security controls; this way, cyber risks can be introduced into the business’s environment.
Categories of Third-Party Risk Management (TPRM)
Most organizations engage third-parties to enable their critical services to increase business exposures. Heightened regulatory expectations require you to continuously monitor and manage your third-party risk and performance.
Risks associated with third-party relationships are scattered across the various segments of your business. There are three basic categories of third-party risk management and they are listed below:
- Financial TPRM: This category of risk makes the third-party have a detrimental financial success or reputation of the entity.
- Operational TPRM: This risk category shows that the third-party will cause a disruption to the operations of the entity.
- Legal and Regulatory TPRM: This risk implies that the third-party will impact the entities, or the third-party’s compliance with local legislation, regulation, or the agreements in place between the parties.
Examples of Third-Party Risk Management
To protect your business from issues associated with regulation and litigation, it’s necessary to be familiar with the examples of third-party risk. Here are a few examples of third-party risk:
- Strategic Risk: This is a sort of risk that arises from a failure to implement appropriate implementation of business decisions.
- Reputation Risk: This risk occurs when a third-party relationship results in dissatisfied customers, inappropriate recommendations, and security breaches resulting in the disclosure of customer information and violation of regulations.
- Operational Risk: This is a risk of loss that results from inadequate or failed internal processes, people, and systems.
- Information Security Risk: This risk arises from unauthorized access, disclosure, or destruction of information. It’s a general term that is used regardless of the form that the data may take.
Challenges of Third-Party Risk Management
In most cases, organizations don’t fully know the risks that third-party vendors expose them to. This makes organizations victims of cyber-attacks that could have otherwise been avoided. The management of a third-party cyber risk is critical for a business, but a lack of consistent reporting and continuous monitoring are creating challenges that could make a company vulnerable to data breaches.
Some challenges that companies face in managing third-party risk and non-compliance issues are:
1. Increasingly complex vendor networks
Today, companies deal with hundreds of vendors, who, in turn, have their own agents and subcontractors. Third-party risks can arise at any time in this large network. The challenge is that vendors may provide a required specialist, but often don’t assume ultimate responsibility for the risk that comes with the service offered by the experts.
2. Lack of policy awareness and training
Quite a number of companies have a flop in tracking vendor risks, in line with their internal policies and certifications. This results in operational issues. Also, if a company’s policy is not effectively communicated to third-parties, there may be a gap in expectations between both parties, thereby affecting a third-party’s ability to assure compliance.
3. Heightened regulatory pressure
There’s a need for an alignment of company policies that deal with third-parties to regulatory rules and requirements. If that’s not put in place, companies could end up being faced with significant non-compliance issues.
4. An unstructured third-party monitoring process
It’s challenging to monitor third-party relationships when companies use undefined and decentralized third-party monitoring systems, which are difficult to scale. In recent cases, companies have failed to monitor their third-parties due to unstructured processes and undefined metrics.
Why Is Third-Party Risk Escalating?
A few factors have contributed to the surge of third-party risk. The first is volume. Because of the last global recession, many organizations pushed out more units of their business to third-parties to reduce internal costs. But this has only made their data systems more exposed.
The second is scrutiny. Most regulators have pushed their focus to how companies are managing their third-party risks and the fines for violation has become unreasonably expensive. Due to this escalating factor, more customers are affected by the third-party system failure, thereby making the organization’s reputation suffer. This reputational impact is the third escalating factor.
How To Overcome The Challenges Associated With Third-Party Risk Management
Following the outcome of the escalating risks and fallouts, board members have been paying more attention to third-party risk management. Board members in every organization are now tremendously concerned with who the company is doing business with.
In a bid to effectively manage this growing risk and stay ahead of future challenges, organizations must utilize trust-worthy continuous monitoring solutions. Companies must use security ratings to help measure and manage their cyber-risks with third-party risk data that are accurate and actionable. Here are three top actions your organization can take to bolster your third-party risk management challenges:
1. Validate self-reported questionnaires through independent risk-based assessments
Organizations should provide independent third-parties who can provide risk-based assessments of their third parties to validate that the findings from questionnaires are a realistic portrait of the state of third party security. Organizations should also focus on key cybersecurity areas that are indicative of a potential breach.
2. Utilize continuous monitoring to assess third parties beyond point-in-time assessments
The implementation of a continuous monitoring process into your third-party risk management is very effective to increase visibility into the security posture of your third-parties. Through continuous monitoring, you tend to bolster the security of your third-party by consistently keeping them accountable. However, this minimizes your overall risks posed to a security incident.
3. Automate your third-party risk management process to reduce unmanaged risk
By automating the third-party risk management process, you’re creating a standardized structure that can be applied to all existing or new third-parties. Your organization can automate your third-party risk management process by finding new technologies that will mechanize the assessment process for your third-party vendors. This helps you optimize resources and ensures that the company’s time is spent on impactful things.
Benefits of Third-Party Risk Management
Third-party risk management has far-reaching benefits that can fundamentally change how a management team makes decisions. Companies are now focusing on strengthening their third-party risk management and meeting the growing demands of the regulatory environment. Here are a few benefits your organizations will enjoy when you have a complete understanding of the risks associated with third-party relationships:
- A more effective means of monitoring third-party performance and contractual obligations.
- Ability to reduce dependency on a large number of third parties for business operations across multiple geographies.
- More visibility and oversight over third-parties.
- Effective control over a third-party’s access to the company’s sensitive data.
- Efficient use of the information required for decision making.
Managing third-party risk can be very challenging. Many businesses have come to a close because of unhealthy third-party relationships they had in the past.
RSI Security works for a variety of industries and company sizes. We take no chances when it comes to cyber breaches. RSI Security acknowledges that tackling third-party risks should be with a result-oriented approach.
When you choose RSI Security to handle your third-party management, you can be confident that your data is secured to minimize cyber breaches. Check out some cybersecurity tips from RSI Security to help you reduce the consistent third-party risks you’re faced with daily.