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Third-party risk management (TPRM) is important to help mitigate undue risk and excessive costs associated with third-party cyber risks. Establishing a strong TPRM program reduces the negative impact that your company’s technology business decisions can have on both your customers and your financial solvency. Third-parties pose a variety of cybersecurity risks to your organization that need to be assessed and either transferred, mitigated, accepted, or denied.
What is a third-party risk assessment?
Third-party risk assessments are a crucial piece of a third-party risk management program. An effective third-party security assessment should act as a due diligence review of a vendor to provide a snapshot of their current cybersecurity programs and policies. This is a proactive way to assess potential third-party risk and identify vulnerabilities or areas for improvement.
What are the common types of third-party risks?
Third-party vendor risks come in many forms. It’s important for organizations to have a comprehensive understanding of the potential risks that a vendor may pose in order to accurately assess and classify threats. This helps ensure that the proper steps are taken to mitigate the risks. Explore examples of different types of vendor risks:
Operational risk
Third-parties pose potential operational risks if they provide a technology integral to continued business operations. If the third-party experiences a cyber attack that shuts down the service, your organization may experience a business interruption.
Reputational risk
While operational risk applies to your business’s ability to continue to provide customers a service or product, reputational risk applies to how customers view your organization. If your third-party experiences a data breach, then your organization may experience decreased customer trust or loyalty in the aftermath.
Compliance risk
As more industry standards and regulations incorporate third-party vendor risk as a compliance requirement, you need to ensure that you apply your organization’s risk tolerance to your third-party business partners as well. For example, if a primary control within your organization is to update security patches every thirty days, then you should hold third-parties accountable to that same standard and monitor to verify their controls’ effectiveness.
Financial risk
There are two main forms of financial risk in regard to working with third-party vendors: excessive costs and lost revenue. This risk arises when vendors are unable to meet the fiscal performance requirements that have been set by your organization. It’s crucial that you identify which vendors have a direct impact on sales or revenue, as systems that are used to track sales activity pose an additional threat to security.
Strategic risk
Strategic risk occurs when a vendor and your organization aren’t aligned on strategic business decisions and objectives. Continuous monitoring of your third-party vendors is key to ensuring that strategic risks don’t lead to compliance, financial, or repetitional risk.