Tuesday 15th June 2021
BLOG: Why is Third-Party Risk Management Crucial?
Third-party risk management is imperative in helping mitigating risk and disproportionate costs associated with third-party cyber risks. Third-parties pose a variety of cybersecurity risks to organisations that need to be assessed. This is a proactive way to assess potential third-party risk and identify vulnerabilities or areas for improvement.
Cyber risk ratings are a progressively prevalent way for organisations to measure their third-party security postures in real-time. Cyber risk ratings allow third-party risk management teams to perform due diligence on business partners, service providers and third-party vendors in minutes rather than weeks by instantly and objectively assessing their external security posture.
Organisations must have a comprehensive understanding of the potential risks that a vendor may pose to accurately assess and classify threats based on the fact that third party risk vendors differ immensely. The correct level of understanding helps ensure that the proper steps are taken to mitigate the risks. There are various types of vendor risks but listed below are a few:
The reputational risk applies to how customers view an organisation. A third party experiencing a data breach can, unfortunately, can cause a decreased customer trust or loyalty in the aftermath for organisations involved.
Third-parties pose prospective operational risks if they provide a technology important to continued business functions. If a third party experiences a cyber attack or something similar, this puts organisations at risk of experiencing business interruptions.
As more industry standards and regulations incorporate third-party vendor risk as a compliance requirement, organisations need to ensure that they are applying their organisation’s risk tolerance to that of their third-party business partners as well.
Working with third-party vendors can cause financial risk such as excessive costs and lost revenue. This risk occurs when vendors are unable to meet the economic performance requirements that have been set by organisations. For this reason, vendors impact on sales or revenue should be identified as that are used to track sales activity pose an additional threat to security.
Strategic risk occurs when a vendor and an organisation are not aligned on strategic business decisions. The continuous monitoring of third-party risk vendors is a pivotal point in ensuring that strategic risks don’t lead to compliance, financial, or repetitional risk.
As the threat landscape grows, cyber-attacks are increasing in frequency, sophistication and impact. Threat actors are continually refining their efforts to compromise systems. Effective third party risk management will provide greater benefits to an organisation, for instance allowing organisations to address future risks in less time and with fewer resources.
Most third-party breaches are caused by a failure to enforce existing rules and protocols. The main focus is organisations evolving their techniques as the threats evolve. Traditional methods are time-consuming, point-in-time, expensive and often rely on subjective assessments, which can be hard for all organisations to do and can be somewhat time-consuming. To find out more about third-party risk management, click here.
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