Outsourcing is a critical part of business management and an important ingredient in business growth. One business outsources some task to another — but that second firm can also delegate some of its own business processes to yet another company. That last company then becomes a fourth-party to the first.

As the role of fourth-party vendors expands, having a vendor risk management strategy in place becomes key to organizational success.

Vendors have access to customers’ critical systems and sensitive data, meaning that organizations become subject to high risk exposure like never before. A report by Ponemon Institute found that 51 percent of organizations don’t assess the information security practices of their third parties before giving those vendors access to sensitive information. How many also assess the security of their third-party vendors’ own vendors? Too few, for sure.

Still, fourth parties can pose risks to your business. They fall victim to some threat, which then infects your third party, which then infects you. So it’s imperative that your organization conduct continuous monitoring and prevent likely cybersecurity risks that fourth-party relationships might pass along to your business.

What Is Considered a Fourth-Party?

Fourth parties can be financial auditors, management consultants, your SaaS provider’s cloud vendor working with your third parties, and more. You can think of fourth parties as an extended and ever-growing ecosystem of interconnected business relationships.

Much like third-party vendors, it is impossible to avoid using fourth-party vendor services or products. No matter how many departments your company sets up, you will never cover every operation by yourself.

What Is a Fourth-Party Risk?

Fourth-party risks fall into three general categories:

  1. Regulatory and Compliance

    Regulatory risk is usually created by a fourth-party security control failure. This results in data breaches and consequent legal problems further “up the chain,” all the way to your business Hence your business partners have to abide by regulations such as the General Data Protection Regulation (GDPR) or Health Insurance Portability and Accountability Act (HIPAA), set by governing bodies.

  2. Strategic

    Strategic risks come from not adopting the correct strategy for an organization in the first place. If a critical vendor fails to respond to changing environments in a timely manner, then a strategic risk will be unavoidable.

  3. Operational

    Operational risk refers to direct or indirect loss arising from insufficient internal processes, people and systems. You do not want your vendors to encounter business continuity threats or failure of IT systems. Because operational risks are less visible than other potential risks, they are hard to pin down precisely.

What is a Fourth-Party Risk Assessment?

Businesses must calculate the level of risk posed by vendors. A fourth-party risk assessment is an attempt to evaluate and monitor not only your immediate vendors, but also other service providers and subcontractors in your extended enterprise, from the initial onboarding to the ongoing due diligence.

You may wonder why this practice is important to your vendor risk management program. We can offer two reasons.

First, there are regulatory obligations. Regulators require organizations to understand the risks posed by their third parties, and part of that understanding is also to know the risks posed by fourth parties. Second, risk assessments help your organization discover certain areas of risk you may want to monitor more closely.

What you don’t know about your vendors can hurt you. Knowing the risk in advance can help you eliminate costly and unforeseen disruptions to your business.

ZenGRC Allows You to Monitor Your Vendor Relationships With Ease

Businesses are growing more interconnected to one another. This situation may inadvertently alter your organization’s risk posture. You need to understand how each vendor affects your business and to detect supply chain risks from all your vendors.

ZenGRC provides a systematic approach to scaling third- and fourth-party risk assessments and driving mitigation activities exactly the way you need it. Do you want to maintain a single inventory of all your vendor relationships? Schedule a demo now and we would gladly discuss your specific needs.