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Third Party Risk Management: Impact and Prevention

Did you know that only 39% of companies assess more than three-quarters of their vendors, even though 66% of companies say they should be? Worse, 74% of companies do not know all the third-party vendors accessing their data. Hint: it’s a lot more than you think. On average, 89 vendors access a company’s network every single week, touching 4.6 devices on average (including firewalls, directories, and VPNs, to name a few).

Third-party vendors are a reality of today’s business world. They allow your business to do things you wouldn’t be able to do otherwise so that you can focus on your core business. But they also introduce a huge amount of risk–just look at the SolarWinds hack, affecting clients ranging from the Department of Defense to AT&T to Visa to the New York Times.

It’s time to get smart about third-party risk management. Here’s a basic overview of third-party risk management, why your company can’t live without it, and how to overcome key challenges.

What is Third-Party Risk Management?

Third-party risk management is basically the process of ensuring your vendors probably won’t cause you a headache (or a PR nightmare) in the future. Or, in more technical terms, it’s the process of ensuring that your would-be partners are worth partnering with.

A third party is any external organization your company works with, including suppliers, service providers, business partners, affiliates, agents, resellers, and more. They can be upstream (a la suppliers) or downstream (a la resellers), but one way or another, they interface with your network and your essential data. A software-as-a-service provider offering cloud-based financial software is a textbook example of a third-party vendor.

If these third-party partners do not have robust security practices, they weaken even the strongest security protocols. And that exposes your organization to a whole host of potential problems–not the least of which is a loss of customer trust.

Third-party risk management allows you to assess risk introduced by these vendors and monitor their practices over time. That way, you can ensure that they’re the right fit–and continue to be the right fit.

The Role of the Vendor Risk Assessment

A key component of this equation is the vendor risk assessment questionnaire. This is typically used to kick off the due diligence process.

A vendor risk assessment questionnaire is a comprehensive overview of the vendor’s security practices, framework, organizational structure, and protocols. This allows you to get the full picture of what you’re dealing with so that you can score the vendor effectively.

That’s important because it introduces a layer of objectivity each time you engage with a new vendor. By assessing every new vendor the same way, you can score them the same way, and that gives a clear picture of whether the vendor is a good fit for your practices.

Why is Vendor Risk Management So Important?

Let’s say you want to start a business. And let’s say you find a potential business partner. You get along great, so you decide to go ahead with the partnership. Fast forward a year and you’re drowning in issues–like all the debt the partner brought to the table, or their hard-and-fast approach to business. Worse, these are all issues you could have identified if you checked the partner first, but you didn’t.

You wouldn’t go into business with a person without making sure they’re trustworthy. So why would a third-party vendor be any different?

Third-party risk management allows you to enter new vendor relationships with confidence. It allows you to see beyond the sales pitch and find a partner that’s truly a good fit. Then, once you start the partnership, third-party risk management allows you to check in and make sure the relationship is still working.

Challenges in Third-Party Management and How to Overcome Them

So, why is it that so many companies struggle with third-party risk management? In short, because it’s a full-time job–when you already have a full-time job.

Third-party risk management is a complex and highly involved process. Many companies do well in due diligence but struggle to maintain it over time. The key is to work smarter, not harder. Here are some common challenges in third-party risk management and what you can do to overcome them.

Challenge: Overreliance on Questionnaires

A common problem we see is an overreliance on your vendor risk assessment questionnaires.

The good news about questionnaires is that they’re self-reported. However, good ones are also quite long–easily over 100 questions. You’re not done once you have the questionnaire, either. You have to validate all of that information.

Questionnaires are useful because they remove the need for labor-intensive (and expensive) penetration testing. Instead, the vendor reports information for you. However, in order for the model to work, it has to use a trust-but-verify system, which shifts the labor further down the timeline.

How to Overcome It: Validate Questionnaires Independently

The best approach to this problem is to simplify the validation process and strengthen the investigation. For many companies, this means bringing in external experts to independently validate self-reported information.

Here’s the good news: by bringing in the pros, you free up wasted manpower and you know that your risk assessments are in the hands of people who know what they’re doing. That way, all you have to do is assess the results.

Challenge: Constantly Chasing Unmitigated Risk

Does your risk management process feel more like a neverending game of tag? Like you’re constantly chasing after risk only to identify new ones? Or your risk management process is being left to roast on your back burner, and when you move it forward, you scrape the pan, cringe, and shove it back to the corner as tomorrow’s problem?

If so, you’re approaching risk management inefficiently.

How to Overcome It: Automation is King

The reality is that successful third-party risk management is ongoing. And hey, we get it. It’s hard to keep up with the constant demands of risk management when you already have a full-time job.

If this sounds like your situation, automation is your new best friend.

There are certain elements of risk management that cannot be automated. But by the same token, not all parts of risk management have to be done manually. By taking care of the parts that can be automated, you free up your time to focus on what matters while also introducing an ongoing risk management process–minus the headache of the old process.

Your Partner in Third Party Risk Management Success

Listen, we get it. Third-party risk management is an involved process. But that doesn’t mean it has to be a difficult one–after all, it’s the cornerstone of successful vendor relationships.

We provide third-party risk management solutions that make it easy to ask the right vendor the right question at the right moment–without the headache. We take care of risk management for you so that you can focus on what you do best: providing a great customer experience.

Sound good? Then schedule a call today to learn more about what our software can do for your team.

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