Amid escalating data breaches and supply chain attacks, businesses are placing an unprecedented emphasis on third-party risk management. That’s a logical and prudent idea, but achieving this level of security requires a comprehensive approach — which makes a checklist for third-party risk assessment indispensable.
In this article, we’ll explore what that checklist for third-party risk assessments should contain.
What Is a Third-Party Risk Assessment?
Third-party risk assessment (also known as supplier risk assessment) is the systematic evaluation of risks introduced to your organization by the third-party vendors, suppliers, and service providers you use. These assessments are a cornerstone of every third party risk management program (TPRM), and can be performed in-house or by independent cybersecurity or safety professionals.
Why is it important to do a third-party risk assessment?
By completing a third-party vendor risk assessment, you gain precise insights into the risks posed to your supply chain ecosystem. With this knowledge you can then make more informed decisions when choosing third-party vendors and services, and avoid third-party relationships that might harm business’s reputation, lead to financial losses, trigger monetary penalties, or squander valuable time and resources. This approach shields your organization from adverse consequences and fortifies its resilience in the face of evolving threats.
What Is a Third-Party Risk Assessment Checklist?
A third-party risk assessment checklist is a comprehensive list of steps and criteria to evaluate the potential risks of engaging with third parties. Think of it as a structured guide to conduct vendor due diligence on the security, compliance, and overall reliability of these external entities in relation to your organization.
Benefits of using a third-party risk assessment checklist
- Risk mitigation. By identifying and understanding potential risks associated with third parties, organizations can implement targeted mitigation strategies to reduce vulnerabilities and strengthen security.
- Standardization. A checklist establishes a standard set of criteria and evaluation parameters; all third parties are assessed on the same basis, which facilitates fair comparisons. Streamlining the assessment process also promotes efficiency and consistency in evaluating multiple third-party vendors or partners.
- Data-driven decision-making. The checklist relies on factual information and data, enabling organizations to make informed decisions based on objective assessments rather than subjective judgments.
- Compliance and regulations. By considering regulatory compliance as part of the checklist, organizations can assure that third-party partnerships meet industry standards and legal requirements.
- Vendor selection. A well-structured checklist helps organizations choose third-party vendors more wisely, opting for those that better align with your security needs and business objectives.
- Transparent communication. Employing a checklist encourages transparent communication between the organization and its third-party partners, fostering a shared understanding of expectations and requirements. This is especially important with new vendors.
- Improved security posture. Regular use of the checklist assures that third-party risk assessments become an embedded, continuous process, contributing to an improved overall security posture.
- Stakeholder confidence. Demonstrating a structured approach to third-party risk management instills confidence in stakeholders, investors, and customers that the organization takes security seriously.
- Regulatory compliance reporting. The checklist facilitates the documentation of assessments and risk management efforts, aiding in regulatory reporting and audits.
Third-Party Risk Assessment Checklist: 11 Key Elements
Vigilance and regular reassessment are key to maintaining a secure and successful network of third-party relationships. Here’s a checklist to help you conduct thorough third-party risk assessments to protect your organization from potential harm while strengthening your reputation as a reliable and responsible business entity:
1. Define objectives and scope
Establish clear objectives for the assessment. Determine the scope of the evaluation, identifying which vendors or partners are subject to review. Consider factors such as the type of services provided, vendors’ access to sensitive data, and how critical the vendor is to your company’s operations.
2. Identify and prioritize third parties
Create a comprehensive list of all third parties currently engaged with your organization. Categorize them based on their level of interaction with your business and potential risk exposure. Prioritize vendors with access to sensitive information, those responsible for critical functions, or those located in regions with known security concerns.
3. Gather information
Collect relevant information about each third party you want to analyze. This data may include vendor contracts, service-level agreements, compliance reports, financial statements, and security policies. Send out a questionnaire and conduct interviews with key personnel responsible for the vendor relationship to get insights into their risk management practices and procedures.
4. Risk assessment framework
Develop a robust risk assessment framework tailored to your organization’s specific needs. This framework should include risk categories such as data security, financial stability, regulatory compliance, operational resilience, and reputational risk.
5. Evaluate security controls
Assess the effectiveness of the third party’s security controls and protocols. Review their information security policies, data protection measures, incident response plans, and access controls. Look for certifications or compliance with relevant standards such as ISO 27001 or SOC 2.
6. Financial stability analysis
Examine each third party’s financial stability to assure that it is financially sound and capable of fulfilling its obligations. Review financial statements, credit reports, and any relevant industry-specific financial data.
7. Regulatory compliance review
Verify the third party’s compliance with industry regulations and legal requirements. Check for any past security incidents of non-compliance or regulatory fines.
8. Performance monitoring
Assess the third party’s historical performance and track record with other clients. Look for references from other organizations that have worked with the vendor and inquire about their experiences.
9. Onsite assessment (when necessary)
Consider conducting an onsite assessment, especially for high-risk vendors. Visiting the vendor’s premises can provide valuable insights into its operational practices and overall security posture.
10. Gap analysis and mitigation
Identify any gaps in the third party’s risk management capabilities and develop a mitigation plan to address these issues. Team up with the vendor to implement necessary improvements.
11. Continuous monitoring
Considering that third-party risk assessment is an ongoing process, you must set up a system to regularly monitor your relationships with third-party partners throughout the vendor lifecycle. Update risk assessments regularly and conduct extra assessments whenever significant changes happen.
The 5 Phases of Third-Party Risk Management
The following are the five phases of third-party risk management. They can be useful for third-party risk management or any other type of risk you might encounter.
1. Identify risks
Start your third-party due diligence by identifying the risks associated with third-party partnerships. Understand your organization’s goals, then consider potential threats that could hinder achieving those objectives and whether they are within your control.
2. Classify vendors
Organize your third-party vendors based on the level of access they have to your systems and data. Use risk ratings like high, medium, or low to communicate the level of risk to your team.
3. Measure performance
Measure the security performance of your third-party partners objectively. Develop specific metrics to assess and monitor risks, considering that not all partnerships are the same and may require different evaluations.
4. Follow security regulations
Assure compliance with security regulations when managing multiple vendors. Identify your organization’s specific requirements, including relevant regulations and standards. Established frameworks such as those from NIST and ISO can be helpful.
5. Assess risks
Create a risk profile for each vendor to understand their products, services, and importance to your organization. This will help you determine the appropriate level of access they should have to your digital network.
Manage Your Risk Assessments With Confidence
The RiskOptics ROAR Platform allows you to monitor both your own risks and those of your third-party vendors in real time. It allows you to assess security risk, implement vendor management strategies, and continuously monitor risks. Think of it as an all-in-one platform that provides valuable insights across your entire organization, helping you make informed decisions with confidence.
Stay ahead of security threats and reduce your company’s exposure to risks. Get a demo today to understand how ROAR serves as your trusty ally, safeguarding your business interests and providing you with the necessary tools to navigate the complexities of third-party risk management successfully.