Today organizations in virtually every industry work with some type of third party, whether it’s a supplier, vendor, contractor, or service provider. No matter the nature of your relationship, your organization likely relies on third parties to perform a number of business functions that are critical to your operations.

Working with third parties has a number of advantages. Among them: improving operational efficiency, saving time and money, and achieving better flexibility, scalability, and agility for organizational growth. At the same time, however, third parties also create a number of new challenges that require attention.

In today’s technology-centric business environment, one of the most critical risks that third parties can pose to your business is cyber risk – the possibility that a cybersecurity incident will occur at one of your third parties and put your data and your operations at risk of disruption.

Research suggests that organizations share their data with an ever-growing number of third parties (730 on average, according to one analysis). At the same time, 53 percent of organizations have experienced at least one data breach caused by a third party, with an average cost of around $7.5 million.

As those trends continue to grow, it’s more important than ever that your organization creates a third-party cyber risk management program to protect your business, your customers, and your other third-party relationships from potentially devastating third-party cybersecurity incidents.

In this article we’ll take a closer look at third party risk management, the benefits of such a program, and some of the best practices your organization can implement to make sure it has the best third-party cyber risk management program in place for your business and your bottom line.

What Does Third-Party Risk Management Do?

At the simplest level, third-party risk management (TPRM) aims to reduce the risk to your organization posed by the third-party relationships you rely upon.

Specifically, third-party risk management involves identifying, assessing, prioritizing, and controlling all the various risks that can develop over the entire lifecycle of your third-party relationships. TPRM begins during procurement, should continue through onboarding and working with the party, and only end when you part ways with the third party and the offboarding process is complete.

While the creation of a third-party risk management program should always begin by drafting a third-party risk management plan that documents all of the policies, procedures, and processes involved, TPRM is an ongoing process. It shouldn’t be viewed as a means to another end; TPRM never “ends” since you never stop using third parties.

A successful TPRM plan should address both large strategic risks as well as more specific operational or compliance risks. It should also spell out how your organization should proceed in the event of a cybersecurity incident.

Because third- (and fourth-) parties often have access to your organization’s critical systems and data, these relationships typically increase the potential for security incidents, and specifically for data breaches. While data breaches are probably the most common and publicized type of cybersecurity incident today, other cybersecurity vulnerabilities are gaining traction, including malware and ransomware, man-in-the-middle attacks, phishing, and more. Ideally, your cyber risk management program should address as many of these threats as possible.

Creating a third-party risk management program that addresses cyber risk can be a daunting task, and it’s one of the many reasons that businesses hesitate to do so. Some of the specific reasons organizations don’t have a comprehensive TPRM program include: lack of resources; difficulty creating an exhaustive list of third parties and in evaluating multiple processes; issues around communication; varying and numerous compliance requirements; and lack of workflow automation.

While many of these challenges might seem overwhelming, your business can reap a number of benefits when it creates a third-party cyber risk management program that thwarts cyber threats before they can do harm.

Third-Party Risk Reduction

As stated above, the goal of your third-party cyber risk management plan is to reduce the number and severity of risks posed to your organization by the third parties you use.

A third-party cyber risk management program will not only impose due diligence and make sure that your team is following the necessary steps to protect itself from third-party cybersecurity threats. It will also specify under what conditions a third-party vendor should have access to your systems, network, and data.

You’ll start by identifying risks posed to your business by any third-party relationships. And by forcing yourself to examine the risks posed to your business today, you’ll be better equipped to consider future threats and the risks they could introduce. Put another way: A third-party cyber risk management program will not only help to assure that your third parties aren’t posing any major risk to your business; it will help you get a better understanding of your own security posture.

Faster Vendor Onboarding

One of the many benefits of a thorough third-party cyber risk management program is that you’ll essentially create a step-by-step instruction sheet for how to manage third-party relationships throughout every stage of the lifecycle.

This means that when you’re ready to onboard a new vendor, you’ll have all the processes, policies, and procedures outlined ahead of time – which, in turn, means that onboarding should be a more painless and easy process for everyone involved.

Improved Scalability

With a third-party cyber risk management plan in place, your organization will be better prepared to scale when the time comes. As mentioned above, a third-party risk management plan should be flexible. Making necessary changes in response to the shifting nature of your business ecosystem should be a clear and straightforward process.

Best Practices for Third-Party Cyber Risk Management

Now that we’ve mapped the potential benefits, let’s look at some of the best practices for creating a third-party cyber risk management program that fits your business.

Get a Team and a Plan

As with any risk management plan, the first step in third-party cybersecurity risk management is to bring together the right people to make the program a success. Creating a team of individuals who are equipped to identify, analyze, prioritize, and mitigate third-party risks will be essential to the success of subsequent steps.

Once you have your team, start planning. Your third-party cyber risk management plan should define roles and responsibilities, draft a vendor risk management policy, and include a detailed description of the procedures and policies for each step in the third-party cyber risk management process.

Follow the Steps

Once you have a plan, begin the process of risk identification. Make a list of all your third parties and all the risks they pose to your organization so you can begin to analyze them. This is an opportunity for your team to participate in table-top exercises to understand existing risks, and also to consider potential risks that have not yet been identified.

You should also take this opportunity to review your service-level agreements (SLAs) for each third-party relationship you have. This is to assure that your vendors are performing as expected and to determine the compliance requirements for your organization. You’ll need to know which regulations and standards both you and your third parties must meet.

Analyze and Categorize

Next, conduct a third-party risk analysis, either in-house or by an independent cybersecurity professional. A third-party risk analysis will enable you to determine the nature and extent of risk that each third-party relationship poses to your business, so that you can classify your contractors by risk and access level.

Once you’ve assigned a risk level and categorized your third-party relationships based on the level of risk they pose, your team will need to prioritize the risks themselves according to their respective severity levels. That way, you can deal with the highest-level risks first – and the third parties that pose those highest risks. Then you can keep working your way down the list according to priority.

Begin Risk Mitigation

Your team will need to create a risk mitigation plan for each identified risk. This is where you’ll have to decide whether you’re going to accept, reject, transfer, or mitigate the risks you’ve identified earlier. For third-party risk, sometimes the best plan of action might simply be to find another vendor.

Keep Monitoring

Query your third parties regularly with risk management questionnaires. Whether you use a template from an existing risk management framework or create your own, onboarding questionnaires and queries should be designed to help you scrutinize the security controls your third parties are applying to its workflow. During the onboarding process, you can also stipulate that a third party must provide you with an up-to-date security assessment to obtain a contract.

Any third parties with particularly high levels of risk might also require an audit, depending on their answers to the questionnaire. You may even need to conduct on-site visits when necessary.

Repeat the Cycle

After you complete these steps, you’ll need to begin the process all over again. Third-party risk management is an ongoing process, and it should be repeated often and for every new third party you onboard and throughout the third-party relationship life cycle.

Reference Existing Frameworks

If all the steps involved in the third-party cyber risk management process sound overwhelming, you’re not alone. It’s a complex process that requires time, money, and attention.

Fortunately, numerous risk management frameworks are available to use as your build or reinforce your risk management program. The International Organization for Standardization (ISO) and the National Institute for Standards and Technology (NIST) are two examples of risk management frameworks that can help you get started on your risk management journey.

Implement Continuous Monitoring

Continuous monitoring is necessary because business partners and vendors can, and do, change their processes all the time. Continuously monitoring for changes in your own business, your third-party ecosystem, and changes in regulations and industry standards isn’t an easy task, but it’s a critical one.

Oftentimes, due diligence simply isn’t enough for cybersecurity. Security and risks change rapidly, and in between assessments there’s the possibility of major security incidents or changes to security posture that might happen without your knowledge.

At the same time, assessments and questionnaires are time-consuming and only as good as the person filling them out. With continuous monitoring, you can make sure that any answers on assessments or questionnaires are reflected in the actual processes and policies of the third party you’re working with.

For cybersecurity, continuous monitoring can limit potential cyberattacks and data breaches for both your organization and your third parties. This means that you’ll likely be able to catch any discrepancies before they evolve into a real threat. Or if a security incident has already occurred, you’ll be better positioned to locate the source of the disruption and implement appropriate controls to prevent it from happening again.

Choose Tools to Help

It’s very likely that you won’t be able to handle all of the third party cyber risk management process all on your own. Unless you’re a large enterprise, risk management can be an expensive and time-consuming process that many organizations can’t manage themselves.

For businesses looking for solutions, software that can help. A good governance, risk management, and compliance (GRC) software tool can help you get on top of your risk management program, especially for cyber risk.

With simple and automated third-party risk management, you’ll be equipped to improve your vendor relationships and improve the burden put on your internal teams.

Manage Third-Party Risks with Reciprocity ZenRisk

Third-party risk management is a process with many moving parts. From onboarding questionnaires, to risk identification and third-party risk assessments, to compliance with regulations and industry standards – it’s enough to make any risk or compliance officer feel overwhelmed. Thankfully, there’s an easier way to manage your third party cyber risk.

Reciprocity ZenRisk is an integrated cybersecurity risk management solution designed to provide you with actionable insights to gain the visibility you need to stay ahead of threats and communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies and maps risks, threats and controls for you, so you can spend less time setting up the application and more time using it.

A single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way that’s framed around their priorities, keeping your risk posture in sync with the direction your business is moving.

Reciprocity ZenRisk will even notify you automatically of any changes or required actions, so you can be on top of your risk posture like never before. Eliminate time-consuming manual work and streamline collaboration by automating workflows and integrating with your most critical systems.

Plus, Reciprocity ZenRisk is seamlessly integrated with Reciprocity ZenComply so you can leverage your compliance activities to improve your risk posture with the use of AI. Built on the Reciprocity ROAR Platform, the Reciprocity product suite gives you the ability to see, understand and take action on your IT and cyber risks.

Now, through a more active approach, you can give time back to your team with Reciprocity ZenRisk. Talk to an expert today to learn more about how the Reciprocity Product Suite can help your organization mitigate cybersecurity risk and stay ahead of threats.