How to Monitor and Mitigate Vendor Risk
In today's economy, many large corporations are turning to outsourcing as a way to save money and improve efficiency. But this reliance on third-party vendors also introduces a new area of risk for companies: vendor risk. As more and more sensitive data is entrusted to outside organizations, the potential for fraud, cybercrime, or other malicious activity grows exponentially. Thankfully, there are steps that companies can take to monitor and mitigate their vendor risk.
What is vendor risk and why should you care about it
Vendor risk is the likelihood that a third-party vendor will not be able to protect your company's sensitive data. This includes actions such as insider theft, malicious activity by employees of the vendor, or simply a lack of security measures in place.
The sheer number of third-party vendors with which most modern businesses interact on a daily basis only serves to strengthen this threat. It is virtually impossible for organizations, even those with robust security protocols in place, to monitor all their partner companies and ensure that they are not mishandling sensitive information.
When you consider that insiders at third-party vendors account for 32% of data breaches, the threat posed by vendor risk is obvious. And it only gets worse as more and more third-party vendors are entrusted with this data.
How to identify and assess vendor risk
There are several steps that companies can take to identify and reduce their vendor risk.
First, evaluate the data at risk. Most organizations have a better handle on this today due to regulations like GDPR or compliance standards like PCI DSS, which require them to document all sensitive data they maintain. Once you know what you're dealing with, you can prioritize your mitigation efforts and tailor vendor risk management programs specifically for each type of data.
Next, look at the specific vendors with whom you do business. Make sure they have security measures in place, such as strong encryption and multi-factor authentication to protect these data types. Service contracts can help ensure that companies meet these standards, but it is imperative that you include vendor risk mitigation clauses in these contracts to ensure they are holding to their agreement.
Finally, it is important for companies to determine the implications of a third-party data breach. This should be done on both a public relations level and a legal one. What damage would come from unauthorized disclosure of your sensitive data? Who would be responsible should the vendor be breached, either due to negligence or malice? What measures must your company take to ensure that leaks never happen?
You can also consider using a third-party to do this for you. A managed security services provider (MSSP) can provide a wide range of cybersecurity and vendor risk management services, including the identification and assessment of vulnerabilities and the development of actionable strategies to combat them.
Mitigating vendor risk through due diligence
There are steps your company can take to mitigate vendor risk beyond drafting contracts and agreements for third-party data handling. These include:
Performing background checks on all third parties with which you do business. This includes verifying that the companies hold the necessary licenses and certifications to actually provide their services, as well as doing a criminal background check and verifying the company's existence and location. These measures help ensure that you are working with a legitimate business and an established organization, not some fly-by-night operation.
Conducting regular audits based on predetermined schedules. Many companies set up yearly or quarterly audits to ensure vendors uphold their contractual obligations and protect sensitive data properly. It is important, however, to balance this frequency with the sensitivity and value of the data at risk. Highly sensitive information like healthcare or financial data should be audited more frequently than less critical types of data such as marketing materials.
Establishing a vendor management team (VMT). This group can include members from across your company, such as legal, compliance, privacy, and IT. The VMT can help you determine which vendors pose the greatest risk and develop mitigation strategies to protect your company from them.
Performing a cost/benefit analysis of mitigation efforts per vendor. It is important to remember that it may be cheaper to simply walk away from certain vendors than to invest in extensive security measures for the little benefit they provide.
Ongoing monitoring of vendor risk
Many companies simply wait until a problem arises before they assess the implications of a third-party breach. This often results in wasted time and money, as well as a hit to brand reputation from being associated with that breach. Instead, it is important to have ongoing vendor risk management policies in place that help you monitor risks and react accordingly.
In addition to the audits mentioned above, companies should also make use of continuous monitoring tools available. This helps ensure that vendors are performing up to par and can detect suspicious activity before it becomes a problem.
Responding to incidents involving vendors
If a third-party data breach does occur, the first thing a company should do is determine whether they were directly affected. If so, they should immediately close any access to sensitive information and further investigate the incident. It also helps to warn customers and clients by issuing an official statement as soon as possible.
The next step is to consider the legal implications of the breach. If your company stores data in locations that it is not authorized to, for example via cloud services or other providers, then it could potentially be liable. Your legal team can help assess third-party risk and take appropriate action to avoid liability in these cases.
It also helps if you have a crisis management plan in place. This includes a list of steps your company can take in the event of a breach, such as working with law enforcement and data protection authorities to contain the problem, notifying customers and vendors of an incident, taking steps to protect other systems from being breached, and more.
The benefits of a well-managed vendor risk program
Your company's vendor risk management system does not need to be overly complicated. It is important, however, to have a strategy in place that helps you identify and manage risks from third parties in an efficient way.
Companies with well-managed vendors often experience several benefits: reduced costs thanks to fewer breaches, less damage from litigation over unauthorized disclosures of sensitive information, and stronger relationships with third parties.
Vendor management is a crucial part of every company's risk management strategy. By regularly assessing your risks and protecting yourself from the bad apples in an industry, you can help ensure data breaches do not become a regular event at your company.
With Privva, managing third parties has never been easier. Our cloud-based vendor risk assessment platform enables companies to manage their vendors throughout the entire engagement lifecycle, from initial vendor assessment to periodic reassessment, and from contract renewal to contract termination.