With the increase in outsourcing among businesses, third-party risk management becomes an integral part of an organization’s risk management framework. Nowadays, third parties and business partners are entrusted more with an organization’s business process. This entails that organizations must ensure vendors are managing data security, information security, and cybersecurity well.
Vendor Risk Management (VRM) is a critical portion of every organization’s information security program. The number of vendors the average business works with is growing, and so is the amount of sensitive data they have access to. By not understanding and handling these potential risks well, your organization becomes more prone to experiencing an information security incident as a result of being associated with one of these vendors.
VRM deals with the management and monitoring of risks resulting from third-party vendors of suppliers of information technology products and services. VRM programs are concerned with ensuring business continuity as well as financial and image damage for third-party products, IT vendors, and service providers. Furthermore, identification and mitigation of business uncertainties, legal liabilities, and reputational damage are included in the VRM program’s comprehensive plan.
One of the downsides of outsourcing is that an organization is exposed to operational, regulatory, financial, and reputational risk if a vendor lacks strong security controls and is breached. By trusting vendors with sensitive data, an organization also takes on the associated vendor risk of a data breach. The risk of data breaches and cyberattacks from a third-party vendor then must be identified and mitigated. VRM focuses on identifying and mitigating those risks by overseeing the relationship with vendors from due diligence and cybersecurity risk assessment through the delivery of the good or service to planning for business continuity.
When engaging third parties, organizations face a variety of risks. Vendors that have access to and handle confidential, sensitive, proprietary, or classified information are especially risky. Regardless of how robust your internal security controls are, if the third-party vendor you utilize has poor security controls, yours can be bypassed.
Examples of the risks vendors can pose include the following:
- Legal or compliance breaches, especially if you work with government agencies, financial services or military contractors.
- Breach of the Health Insurance Portability and Accountability Act (HIPAA) that requires protected health information (PHI) to be secured correctly.
- Legal issues such as lawsuits, class action suits, loss of work, or termination of relationships.
- Information security and data security risks -you need to know the amount of information to which a vendor has access compared to which they should have access.
- Loss of intellectual property -if a vendor has access to proprietary information, there is a possibility that they steal it for themselves or expose it through a data breach.
- Relaxed restrictions with long-term vendors can be a big risk, it’s important for controls to be as rigorous five years in as they are on the first day.
One key way to reduce risk is to only give vendors access to what data they need to do their job and no more.
That said, to really reduce risk, organizations need to have an overall risk management strategy in which vendors are constantly measured and evaluated. It is not enough to have subject matter experts who manage the relationships with their vendors. Data breaches can come from any part of your organization.
Without organization-wide practices, departments can pick their own metrics to measure and ad hoc requirements that can result in substandard risk management.
It is essential to understand how a third-party vendor fits into the overall context of an organization’s projects and goals when assessing a vendor. Examples of vendor utilization include the following:
- Cloud web hosting services
- Equipment maintenance
- Outsourced data center
- Software as a Service (SaaS) providers
What are the Benefits of Vendor Risk Management?
A good vendor risk management program will ensure that:
- Future risks take less time and fewer resources to address;
- Additional third-party vendors added to your ecosystem are seamlessly incorporated into your VRM (i.e., adaptive cyber insurance);
- Accountability for both the company and vendor is understood;
- Quality of your services isn’t damaged;
- Costs are reduced where possible;
- Availability of your services is improved;
- Your priority is your core business function;
- Operational and financial efficiencies are secured; and
- Risk is reduced as long as everyone follows the plan.
Cowbell’s Risk Engineering department offers its policyholders assistance with their vendor vetting process. Our policyholders can set up a meeting with one of our dedicated risk engineers and provide assistance with third-party risk management. Furthermore, our Risk Engineering department created a Vendor Risk Assessment – as part of Cowbell’s continuous risk assessment – that our insureds can send to potential and existing vendors. Please feel free to reach us at [email protected] and we will be happy to accommodate your needs.