As organizations continue to outsource critical business functions to third parties, the need for robust third-party cyber risk management has only grown more important. Data breaches and supply chain disruptions are just two examples of the severe consequences that can result from inadequate third-party security. Indeed, a third party’s involvement in a data breach results in a 14 percent increase in the average cost of the breach, as reported by the Ponemon Institute and IBM.
Organizations must implement security controls and continuous monitoring tactics to avoid these risks and secure their third-party relationships. In this blog post we’ll explore third-party cyber risk management and discuss the best practices for automating third-party risk management.
What Is Third-Party Cyber Risk Management?
Third-party cyber risk management refers to identifying, assessing, and mitigating risks that arise from third-party vendors or service providers in your IT ecosystem.
As businesses increasingly rely on third-party vendors for critical services such as cloud computing, payment processing, and customer relationship management, those businesses are also exposed to the security risks associated with those vendors. Third-party cyber risk management evaluates the security posture of potential vendors, monitors their security practices, and assures that they comply with security standards and regulations.
The process also includes assessing the potential harm of a security breach at a third-party vendor and implementing risk mitigation strategies such as cyber insurance, incident response planning, and security audits.
Why Is Third-Party Cyber Risk Important?
Third-party cyber risk is important for several reasons. First, almost every organization relies (sometimes quite extensively) on third-party vendors to provide mission-critical services. Since these vendors have access to sensitive information and systems, it’s essential to conduct due diligence on them to assure that their security protocols are robust enough to protect against cyber threats.
Second, many industries are subject to regulatory compliance obligations that require third-party cyber risk management. Failure to fulfill these obligations can result in significant financial penalties and legal consequences.
Third, organizations are increasingly worried about attacks that start in their supply chain, and then come through that chain to harm the organization itself. The more vendors you have, the larger your attack surface is – and the greater the risk of a supply-chain attack. Third-party risk management (TPRM) programs can help you to identify and mitigate potential risks that may arise from using third-party vendors in the supply chain, and then you can implement remediation measures to address the vulnerabilities you find.
Best Practices for Automating Third-Party Risk Management
The best practices for automating third-party risk management can be distilled into four steps.
- Implement a centralized risk management platform. By using a centralized risk management platform, organizations can streamline their third-party risk management processes and gain real-time insights into their vendor landscape. Risk management platforms can help organizations make informed decisions about vendor relationships and reduce the likelihood of reputational or financial damage due to vendor-related risks.
- Conduct regular risk assessments. Regular risk assessments are crucial for identifying and mitigating potential vulnerabilities and to stay compliant with regulatory requirements. These assessments can help organizations stay ahead of potential risks and assure that their vendor relationships are aligned with their business objectives.
- Establish risk-based vendor segmentation. A risk-based vendor segmentation framework lets you group vendors into categories based on the level of risk each vendor poses to your information security. Then you can apply risk management controls as necessary – and more precisely.For example, one approach to vendor segmentation is to categorize vendors based on the criticality of the systems or services they provide and their access to your network. The vendor segmentation process should be applied across the vendor lifecycle, from onboarding to offboarding.
- Monitor vendor performance. It’s critical to keep an eye on what your vendors are doing over time, and to maintain the integrity of your vendor relationships. Automated monitoring can help organizations detect issues in real-time and then take swift action to address them. With real-time monitoring, organizations can reduce the risk of potential disruptions and assure that their vendor relationships are delivering the expected value.
How Do Third-Party Risk and Vendor Risk Differ?
Vendor risk management refers to the process of identifying, assessing, and mitigating risks associated with vendors, including both third-party and fourth-party vendors. (Fourth-party vendors are the vendors of your vendors, meaning they provide services to a third-party vendor that is providing services to you.) Vendor risk management encompasses a wide range of risks, including financial, operational, reputational, legal, and cybersecurity risks.
“Third-party risk management” is a more narrow term that specifically focuses on cybersecurity risks associated with third-party vendors. Third-party vendors are external entities that have access to your systems, networks, or data. Third-party risk management involves evaluating the security posture of potential vendors, monitoring their security practices, and assuring that they comply with security standards and regulations.
Therefore, while vendor risk management is a broader term that includes all vendors, third-party risk management is a subset of vendor risk management that specifically focuses on cybersecurity risks associated with third-party vendors. It’s important for organizations to implement both vendor risk management and third-party risk management strategies to protect their sensitive data and ensure business continuity.
Automate Third-Party Risk Management With the ROAR Platform
Managing third-party vendors can be complex and time-consuming; tackling the task with spreadsheets and manual processes can lead to inefficiencies. That said, it’s essential that your vendors meet your company’s compliance and security standards
This is where the RiskOptics ROAR Platform can help. It offers a comprehensive solution that breaks down silos, consolidates data, and provides a single source of truth for vendor risk management. The platform offers a centralized repository for all vendor-related information, making it easier to manage vendors and assess their risk levels.
Schedule a demo to learn how ROAR can enhance your overall cybersecurity posture.
