Defining Risk Management Framework and Concepts
Any company that hires suppliers to help them run their business should examine and monitor each one for dangers and security flaws that could lead to a cyber-attack or the loss of sensitive data.
Many businesses outsource elements of their operations to other companies in order to increase efficiency and cut expenses. Outsourcing frequently necessitates exchanging sensitive information with the vendor. Vendors may have access to personally identifiable information (PII), such as customer information, financial data, employee health records, and even intellectual property.
Every company that uses third-party vendors should devise a strategy and implement measures to protect their data from cybersecurity and privacy threats. In this post, we'll explain why vendor risk management is so important, describe the different types of vendor risks to examine, and provide best practices for managing and mitigating vendor risk.
Types of vendor risks to be aware of
One of the most important steps in mitigating vendor risk is to properly vet all potential vendors before signing any contracts. Be sure to check a vendor's references, their financial stability, and whether they have adequate security measures in place to protect your data.
Vendor Questionnaire & Risk Assessments
You can get a good sense of a vendor's security posture by asking them to fill out a vendor questionnaire or risk assessment. These documents will help you evaluate a vendor's understanding of information security and their ability to protect your data.
Once you've identified the risks associated with a particular vendor, you should document them in a Risk Register. This will help you track and monitor the risks over time, and ensure that adequate mitigation measures are in place.
Ongoing Vulnerability Assessments
Regularly testing and assessing your vendors' systems for vulnerabilities is an important part of vendor risk management. These assessments can help you identify weaknesses in a vendor's security posture and take steps to mitigate them.
Monitoring your network
In order to properly monitor your network for vendor-related risks, you should have a clear understanding of which systems and data are shared with each vendor. This will help you prioritize which vendors pose the greatest risk to your organization and focus your monitoring efforts accordingly.
It's also important to have visibility into your vendors' networks. This can be accomplished by requiring them to provide you with regular reports on their network activity, or by using a third-party vendor risk management platform.
What Are the Best Practices for Managing and Mitigating Vendor Risk?
Operational risk has been a hot topic in recent years as more and larger companies come under regulatory scrutiny for their interactions with third parties. It's important to note that operational risks can't always be measured by numbers on spreadsheets, but instead needs flexibility from both lines of defense: the first line focused on protecting against financial losses while also providing challenges for robustness within your processes; this second line should support you throughout every step so they don’t get out-of-control.
Today, many nonfinancial risks are caused by a breakdown in procedures, such as delayed disclosures, customer and client disruption, and revenue and reputation loss.
Business process resilience evaluation, as well as appropriate challenges and intervention prioritization, necessitates the use of new frameworks and tools. The following types of actions should be supported by these frameworks:
Risk identification. The first step in operational risk management is to identify all risks that could impact your business. This includes both financial and nonfinancial risks, as well as risks posed by third-party vendors.
Risk assessment. Once the risks have been identified, it's important to assess them and determine their severity. This will help you prioritize which risks need to be addressed first.
Risk management. Once the risks have been assessed, it's time to put a plan in place to mitigate them. This may include implementing new procedures or security measures, or working with your vendors to ensure that they are taking adequate steps to protect your data. For example, you may want to require them to undergo regular vulnerability assessments.
Reporting and monitoring. It's important to track the progress of your risk management plan and ensure that it is effective. This can be done by reporting on the risks regularly, and by monitoring the systems and data that are shared with your vendors.
Continuous improvement. Risk management is an ongoing process, and it's important to constantly evaluate and improve your risk management plan. This includes revisiting the risks that were identified in the initial assessment, and making sure that the mitigation measures are still effective.
When it comes to managing and mitigating vendor risk, there are a number of best practices that organizations can follow. Some of the most important include:
Establish a clear process for assessing and managing vendor risk. This should include steps for identifying, assessing, and mitigating risks.
Require your vendors to undergo regular security assessments. This will help you identify any vulnerabilities that they may have.
Establish clear expectations for how your data should be protected. This includes specifying which security measures your vendors should be using, and requiring them to sign a data protection agreement.
Maintain regular communication with your vendors. This will help you stay informed of any changes or problems that may occur.
Regularly review your risk management plan and make necessary adjustments. This will help ensure that it remains effective.
It's important to note that managing vendor risk is not a one-time process. It's an ongoing effort that requires regular monitoring and adjustment. By following these best practices, organizations can reduce the risk of data breaches and other negative outcomes.
Nearly all areas of operational risk can benefit from advanced analytics
Leveraging data and analytics can help organizations reduce the cost of risk management, free up resources to focus on more strategic initiatives, and improve decision-making. Whether in information security, data, compliance, technology and systems, process failure, or even personal security and other human-factor risks, the advanced analytics advantage is becoming increasingly evident.
Some important applications include:
Improving information security by helping with early detection of malicious activity, identifying patterns and relationships in data that could indicate an attack, and more accurately predicting future risk.
Enhancing compliance with regulations by analyzing past regulatory data to identify trends and areas of focus, automating the review of large amounts of data to find violations, and more accurately predict future risk.
Optimizing business processes through a better understanding of how different process steps impact one another as well as the overall performance of the business, identifying opportunities for improvement, and more effectively allocating resources.
Mitigating human error through identification of risky behaviors and areas, development of targeted training programs, and application of predictive analytics to recommend optimal actions in high-risk situations.
When it comes to the use of analytics in risk management, the possibilities are endless. The important thing is to first understand where your risks lie and then determine the most appropriate way to leverage data and analytics to reduce those risks.
You are responsible for the personally identifiable information that your company holds about its customers (and employees). Applying the best practices outlined above will assist strengthen your company's vendor risk program and help you examine and onboard each new vendor in a consistent manner.
By taking a proactive approach to vendor risk management, you can protect your organization from the potential negative impacts of doing business with third-party vendors.