Why Managing Third-party Risk is Essential for Today’s CIO
Any organization that fails to take into consideration supply chain cybersecurity threats is putting itself at great risk. The fact is, a company can be impacted by incidents that emerge from virtually anywhere within the chain. That’s why third-party risk management has become so important.
Managing third-party risk involves identifying and mitigating risks to an organization from external business partners, including suppliers, vendors, service providers, consultants, and contractors. As part of the process, organizations need to understand the risk profile not only of their direct business partners but also of the companies those partners are doing business with.
In many cases, third-party vendors outsource portions of their business to service providers, and each of those companies’ security postures can ultimately have an impact on the organization that’s contracting with the third party. Each additional third-party relationship magnifies an organization’s risk.
Needless to say, third-party risk management can be a challenging undertaking, especially for enterprises with complex supply chains. But it is necessary to implement the safeguards required to reduce or eliminate risk. The stakes are too high to ignore potential threats among business partners. This includes the possibility of business disruption because of a security breach.
For example, many companies have come to rely on outsourced services for payroll, IT infrastructure, web hosting, application development, among many others. If a third-party provider fails to deliver its services because of a disruption of any kind, that can have significant consequences for its clients.
In addition, third-party access to an organization’s physical facilities and IT systems can open it up to an increased level of risk. If the company’s customer data is exposed because of a third-party’s security vulnerability, for instance, the company is still liable for the attack. Industry research has shown that a large percentage of companies have experienced a cybersecurity breach because of weaknesses in their supply chains or third-party vendors.
Managing the risk
As part of managing third-party risk, it is essential that organizations vet all the parties they partner with. This helps them identify and assess the risks third parties create so they can work with them either to control those risks or find more secure alternatives.
In order to assess their third-party associates, organizations need to first take a complete inventory of these companies. Third-party partners might include suppliers and contractors, IT management services, software vendors, cloud service providers, staffing agencies, payroll service providers, fidelity management services, and tax professionals to name a few.
They might include everything from large, global organizations to individual contractors, as well as the companies whose businesses subcontract services to. Needless to say, this can take time, but it’s worth the effort to ensure third-party risk management.
Part of the vetting process also includes identifying and documenting the systems, applications, and data each of the third-party entities can access. Because many of these partners can access and process an organization’s highly sensitive data, it’s vital to ensure they meet proper security standards.
It’s also important to evaluate third parties individually to determine the likelihood and possible results of data breaches and other security incidents, then classify the parties according to the level of risk they pose. That way, security teams can focus their mitigation efforts on the highest-risk parties first.
There is really no limit to the potential security shortfalls partners can have. Third parties might not have an acceptable level of visibility into endpoint devices used by their employees or sufficient access controls to ensure the protection of their systems and networks. That can leave them exposed to a number of security issues.
One way to assess the security posture of business partners is to send each a questionnaire for information gathering around organizational structure and governance, cybersecurity practices in place, networks and other digital assets it needs to access, and security measures it takes when accessing resources.
Based on the security assessment, mitigation might require taking measures such as restricting access to certain assets, calling on the partner to address vulnerabilities, or implementing stronger security controls. If an organization determines that risks can’t be reasonably reduced, it should consider ending the relationship.
Evaluating third-party is not limited to cybersecurity. Organizations also need to ensure that partners are meeting regulatory compliance requirements because a lack of third-party controls can result in data loss and subsequent regulatory fines.
In addition, companies need to ensure that proper operational controls are in place with third parties, because failures can cause businesses to shut down for extended periods.
Third-party failures in any of these areas can result in lost business, financial damage, and a negative impact on the brand and reputation of any company that deals with the business that experienced a breach or disruption.
It’s important to remember that third-party risk management is not a “set it and forget it” proposition. Because third-party behavior and the threat landscape change over time, organizations need to perform regular assessments of their business partners. They can perform monitoring continuously in real-time by deploying tools such as vendor risk-management platforms.
The assessment process needs to be repeated for each new third-party partner an organization hires. By being constantly vigilant, organizations can ensure that the third-party companies they do business with present as little risk as possible.
Third-party risk management takes a lot of effort, but the potential advantages are clear. It leads to greater visibility into relationships with partners, which in turn enables companies to better understand the interconnectivity among supply chain parties and the potential risks.
In addition, due diligence allows executives to make more informed decisions about the organizations they do business with. Risks can be identified and controlled. Third-party risk management can also lead to better regulatory compliance because it’s a requirement of many regulations.
Perhaps most important, managing the risk of third-party relationships will help keep an organization’s IT resources protected against a variety of threats, and its supply chain operating efficiently.
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