Third-party risk monitoring is the continuous assessment of third-party vendors that have entered into a business relationship with your company, to understand how much risk they pose to your organization at any given moment. Monitoring is critical to any third-party risk management program (TPRM).
The first step in third-party cyber risk management is due diligence that you perform on a vendor before entering a business relationship. In today’s world of interconnected systems, however, it’s imperative to understand how your vendors and contractors process the information you share with them after they’re onboarded into your “extended enterprise.” That’s monitoring.
Why Is Third-Party Risk Monitoring Important?
As mentioned above, third parties expose your company to various risks. While these risks are not directly in your control, a data breach at one of your third parties could disrupt your business and damage your reputation.
Third-party risk assessment and a TPRM program enable your organization to build a partnership of trust with your vendors. You can collaborate with them to evaluate cybersecurity risks within their systems and develop mitigation strategies to protect business continuity for both of you.
Continuous third-party monitoring is an active process. Instead of responding to risk management meltdowns, both organizations can focus on optimizing information security before any breakdown happens. In addition, third-party vendor management is essential to maintaining productive relationships.
How Is Third-Party Risk Monitoring Conducted?
A robust third-party risk monitoring (TPM) process should follow a relationship lifecycle, starting with planning.
Developing a plan to handle the relationship is the first step in the third-party risk management process. This step is even more essential when a company considers contracting with third parties that provide (or assist in) critical activities.
The planning phase is also an excellent opportunity to discuss expectations for automation to streamline workflows and reduce errors. You will want to know up-front if the third-party vendor is not interested in collaborating on efficient procurement processes.
Due Diligence and Third-Party Screening
Due diligence questionnaires are a crucial step in learning about your new vendor. Doing business with shady characters exposes your business to operational and reputational risk. All potential vendors should undergo comprehensive screening to assure that they meet your expectations for ethics and integrity.
A solid contract is fundamental for effective third-party risk management. Carefully outline service level agreements (SLAs), pricing, payment terms, and other supply chain expectations. Include requirements in the contract for cybersecurity risk monitoring and immediate remediation of information security gaps.
Ongoing Third-Party Monitoring
Hold suppliers accountable and perform continuous monitoring. When onboarding a new vendor, it may be advantageous to perform monthly reviews. Quarterly or annual inspections may be sufficient for mature vendors. Standardized templates and dashboards streamline ongoing monitoring activities.
Part of risk management is the planning of contingencies and mitigation strategies. Develop a backup plan for every vendor in your supply chain. Identify alternative vendors to transition the business to another third party or bring production in-house. Investigate alternatives to avoid last-minute business continuity risks.
Examples of third-party monitoring
As international supply chains become increasingly connected, third-party risk has grown exponentially. Hence third-party monitoring for cybersecurity, reputational, operational, and financial risks is critical to maintaining the stability of your organization’s supply chain.
Here are some notable examples where better TPM could have helped organizations avoid problems.
- Magecart, a cybercriminal group, has carried out numerous attacks on retailers worldwide since 2015. Recent attacks on Ticketmaster, British Airways, Newegg, Feedify, and other companies are believed to be the group’s work. Magecart hackers often infect third-party web servers used by their victims to steal sensitive information, such as credit card data.
- A significant breach affected Amazon, eBay, Shopify, and PayPal in 2020. A third-party database of approximately 8 million online retail purchases in the United Kingdom was made public. In 2017, attackers hacked many third-party sellers affiliated with Amazon and used their accounts to post fake offers.
- Apple and Meta were caught by hackers posing as law enforcement in 2021, where the hackers had already accessed law enforcement systems to send fraudulent demands for the data. Apple and Meta provided the threat actors with customer addresses, phone numbers, and IP addresses.
Why Are Control Assessments Important to Risk Management?
Assessing the state of a third party’s internal controls is integral to the oversight and monitoring of that third party over the long term. If you discover that the third party’s internal controls are weak, and the possibility of a data breach or risk to information security is high, your company will need to implement remediation strategies and verify effectiveness.
How Often Should Monitoring Be Done?
The third party should perform continuous risk monitoring in real-time to prevent cybersecurity risks and data breaches of the sensitive data you share with it. The third party should also provide to you a dashboard of information security and quality metrics, which the party should update regularly. You, meanwhile, should review your most critical vendors and risks quarterly, if not monthly. Less critical vendors may be reviewed annually.
You should perform comprehensive third-party risk assessments annually. Data provided in the monthly or quarterly information security and quality metrics will guide these assessments.
Cybersecurity is constantly evolving, and security controls can quickly be rendered ineffective. Consistent monitoring can bring that threat to light so you can respond promptly to cybersecurity risks.
Third-Party Risk Monitoring Best Practices
Although third-party risk management policies are well intended, they are often challenging to sustain. Follow these five best practices to build a solid third-party risk management program.
Use a Framework
First, organizations must define the issue they want to address with the process. This implies setting up a framework (or use an existing framework; many are publicly available) that identifies risk management and compliance obligations.
This process assists the organization in identifying its risks and making sure that it has the necessary attributes to assess suppliers. Each framework is unique, but most have a standard structure and essential components.
Traditionally these processes require manual activities, which means they do not have long-term durability and efficiency. By introducing a technology platform, your company can develop a standardized strategy, improve transparency, facilitate communication, and optimize resource use.
Build a Vendor Inventory
It is critical to identify which third parties are vital to your business. To improve the effectiveness of your TPRM program, create an inventory of all the vendors you have and classify them based on the products or services they provide and the data they handle.
Improve Third-Party Risk Management with ZenRisk
Keeping track of third-party vendors and their threats to your business is too much for spreadsheets or traditional methods. A robust vendor risk management program is necessary to help you streamline your onboarding and vendor risk assessment process.
Reciprocity ZenRisk is intuitive and simple to use. It streamlines evidence management, workflows, and reporting for risk management and regulatory compliance.
The platform offers a simple user experience combined with automation and analytics to facilitate vendor risk management. ZenRisk distributes and collects due diligence questionnaires. It will even aggregate the results and assign a risk score to each vendor.
Workflow management features offer easy tracking, automated reminders, and audit trails. In addition, the ZenConnect feature enables integration with popular tools, such as Jira, ServiceNow, and Slack, ensuring seamless adoption within your enterprise.
If you are interested, you should schedule a demo today!