By Nagaraj Kuppuswamy – source
In today’s complex and interconnected business environment, organizations rely heavily on third-party vendors and partners to support critical operations. However, these relationships also introduce new cybersecurity risks that must be carefully managed. Cybercrime is rising exponentially. The cost of cybercrime is expected to be around $8 trillion in 2023 and is set to grow to $10.5 trillion by 2025. Therefore, Vendor risk assessment has become an essential process for identifying and mitigating third-party cyber risks. In this blog post, we’ll explore what vendor risk assessment entails and why it’s a crucial component of any cybersecurity strategy.
What is Vendor Risk Assessment?
Vendor risk assessment is the process of evaluating cybersecurity practices because of enhanced cybersecurity risk for businesses and the posture of third-party vendors and partners. The goal is to understand the level of risk associated with that vendor and determine appropriate steps to reduce risk exposure for your organization. This involves looking at factors like:
- The type of data the vendor handles or stores on your behalf
- The vendor’s information security policies and practices
- Any past security incidents or breaches involving the vendor
- The vendor’s financial stability and reputation
- Legal and regulatory compliance by the vendor
Vendor assessments allow you to identify vulnerabilities or gaps that could lead to a breach at the vendor that impacts your organization. With this information, you can require the vendor to make security improvements as a condition of doing business together.
Why is Vendor Risk Assessment Important?
With the growth of outsourcing, vendors frequently have access to sensitive systems and data. However, many third parties have lackluster cybersecurity compared to their customers. In fact, third-party cyber incidents were involved in 60% of breaches, according to the 2022 Verizon Data Breach Investigations Report. Utilizing cyber security tools for shielding the online ecosystem has become even more paramount.
Some of the largest and most impactful cyber attacks have originated through vulnerable vendors. The 2013 Target breach that impacted 110 million customers began through network credentials stolen from an HVAC vendor. The 2020 SolarWinds supply chain attack was also launched through a software update from the IT management company.
These examples highlight why organizations must have visibility and control over vendor risk. Vendor cyber incidents can directly translate into deep financial, operational and reputational damage for your business. Robust vendor risk assessment allows you to find and fix security gaps in order to prevent vendor-enabled breaches. Vendor risk assessment is also part of the comprehensive third-party risk management best practices.
Key Components of Vendor Risk Assessment
An effective vendor risk assessment program includes these core components:
1. Inventory tracking – The first step is compiling a register of all vendors, contractors, and other external parties granted access to systems, networks, or data. Details like the type of access and category of data accessed should be documented.
2. Initial vendor evaluation – With your inventory in place, conduct a preliminary review using questionnaires or other means to determine the inherent risk levels of each vendor. Factors like the criticality of the product or service and the handling of sensitive data help determine the TPRM vendor risk profile.
3. In-depth risk analysis – Higher risk vendors are subject to comprehensive assessments examining technical, organizational and process controls around security and compliance. Audits, site visits, and documentation reviews help verify their actual security posture matches claimed practices.
4. Risk scoring – Data from assessments and audits is used to assign an overall risk score for each third party. This allows you to prioritize which vendors may require risk treatment and additional controls.
5. Risk acceptance and treatment – Based on risk scores, determine appropriate actions to reduce unacceptable risks to acceptable levels. This could require the vendor to implement new security controls with timelines for remediation.
6. Continuous monitoring – Security and performance should be monitored on an ongoing basis through audits, questionnaires, and other means. This allows you to identify any emerging risks related to the vendor.
Integrating Vendor Risk Assessment into Your Cyber Program
For maximum impact, vendor risk assessment should be embedded within your overall information security management system. Here are the best practices for integration:
- Establish clear policies, standards, and procedures around vendor cyber risk to ensure consistency across the program. Include requirements for types of assessments and audits based on data access or risk level.
- Incorporate vendor risk assessment into procurement and vendor management processes. Cyber risk analysis should be conducted during vendor selection and throughout the business relationship.
- Take a risk-based approach, focusing resources on critical vendors that handle sensitive data or provide essential services. Lower-risk vendors may only require an annual questionnaire.
- Assign vendor cyber risk management responsibility to a cross-functional team with representation from legal, IT, and cybersecurity, procurement, compliance, and other groups.
- Share assessment results and required improvements with each vendor. Provide guidance and support to help vendors address identified vulnerabilities.
- Report frequently to senior leadership and the Board on the overall vendor risk profile, including the maturity of risk assessment practices.
Conclusion
With breaches increasingly originating from third parties, organizations must take proactive steps to assess and mitigate cyber risks across their vendor ecosystems. A clearly defined vendor risk assessment program allows you to surface and close security gaps before they can be exploited by attackers. Integrating assessments into regular business processes ensures that vendor risk management receives ongoing attention as a priority for the entire company. Robust due diligence of vendor cyber risk is no longer just a best practice – it’s a necessity to protect your most critical data and systems from third-party threats.
Author Bio:
Nagaraj Kuppuswamy is the Co-founder and CEO of Beaconer, an esteemed enterprise specializing in managed third-party risk using the cloud-native AI-based solution. With an extensive portfolio of accolades and industry certifications, Nagaraj stands out as a seasoned expert, boasting over 16 years of dedicated involvement in the field of Cybersecurity. Throughout their career, he has predominantly focused on elevating the realm of third-party risk assessment. You can connect with him through Linkedin.
