When it comes to third-party risk management, vendor coverage is something that all organizations think about. In fact, more than 8 in 10 organizations globally (83%) have experienced a third-party incident – such as a supplier losing data after falling victim to a cyberattack – in the past three years, according to recent research by Deloitte.
However, if you have finite resources, it can prove difficult to optimize your vendor portfolio by rigorously assessing every third-party supplier.
So how can you prioritize more effectively and enhance your organization’s security posture? To help you set up sustainable, realistic processes, we’ll talk you through a series of tips and best practices.
1. Identify your critical assets and functions
To start, you’ll need to be aware of what critical assets and functions you currently have. These are essentially the lifeblood of your business, encompassing your organization’s sensitive data, proprietary information and essential operations.
By knowing which assets and functions are most vital to your operations, you can prioritize third-party risks that have the potential to cause the most harm. Let’s say, for example, that your organization relies heavily on customer data to drive business decisions and personalize its services. In this case, your main concern would be third-party risks related to data breaches or mishandling of data by vendors. Similarly, if your organization’s core functions are heavily dependent on a specific vendor or supplier, you’ll be most concerned with any risks associated with their reliability, security posture or financial stability.
Take some time to map out dependencies and vulnerabilities associated with your third-party relationships. This will help you tier your vendors effectively later down the line.
2. Identify your current third-party vendors
Ask yourself: “Do I have a clear picture of the vendors within my business?” If the answer is “No”, then you’ll need to look at this next.
Before any progress can be made in the vendor assessment process, you need to be aware of what suppliers are working with your company, and what goods and services they provide. Without this data, you won’t know what you’ll be assessing.
To address this, we recommend that you collect a list of your known vendors from procurement and add them to your vendor register. Be mindful that procurement is not the only function which can onboard vendors; you will need to survey all departments. Record any key information, such as the goods and services provided, along with any contact details.
3. Assess risk impact and probability
Not all third-party risks are created equal. This means you’ll want to evaluate the potential impact and probability of each scenario. High-impact events with a high likelihood of occurring will need immediate attention and mitigation. Conversely, low-impact risks with only a minimal probability of occurring are something you can address in a way that’s less resource-intensive. Risk assessment frameworks and methodologies are useful here to help you both quantitatively and qualitatively analyze and prioritize your risks in the best way possible.
Remember that when you’re assessing risk impact, you’ll want to consider the potential consequences should a third-party risk happen. These may include (but aren’t limited to):
- Financial losses
- Reputational damage
- Legal liabilities
- Operational disruptions
- Regulatory fines
When evaluating the likelihood of each risk scenario occurring, you’ll need to examine factors such as historical data, threat intelligence and vendor performance metrics. If you need help with the initial tiering of vendors more efficiently, we’ve got a free third-party tiering assessment template that can help with this.
By conducting a thorough risk assessment, you can effectively prioritize third-party risks based on which ones are most likely to cause the most harm to your organization. This means you’ll know exactly where you need to allocate your resources to mitigate them – for example, a vendor with a history of security incidents or a poor track record of compliance is likely to pose a greater risk compared to others. Similarly, emerging threats such as cyberattacks targeting supply chains, or regulatory changes that affect your third-party relationships are something you should carefully consider when prioritizing risk.
One way to approach the assessment is by using simple scores weighted against your choosing tiering factors, enabling you to rank vendors with increasing trust levels successfully. These levels can be something like Informal, Trusted, Partner, or Strategic. This will allow your third-party risk team to understand and prioritise their efforts to establish and assure trust.
4. Consider regulatory compliance
Regulatory compliance adds a whole other layer of complexity to third-party risk management, but it’s not something you can afford to overlook (particularly in highly regulated industries). What regulatory requirements are relevant to your industry and geographical location?
Compliance with laws and standards such as GDPR, CCPA, HIPAA, PCI DSS and SOX is essential depending on your industry – failure to comply can leave your organization facing hefty fines, legal actions and damage to brand reputation. This is why it’s crucial to prioritize those third-party risks that could lead to any violations.
Start by conducting a thorough review of the regulatory landscape relevant to your industry and geography. Identify specific compliance requirements and standards that impact your organization’s operations and standards that impact operations and third-party relationships. For example, if your organization handles personally identifiable information (PII), you’ll need to prioritize third-party risks related to data privacy and security. This will help you comply with regulations such as GDPR or CCPA.
Next, assess the compliance posture of your third-party vendors and partners. How well do they adhere to regulatory requirements, certifications and industry practices? Conduct audits, assessments and questionnaires to find out what you need. You can then prioritize vendors that demonstrate a strong commitment to compliance, and implement robust controls in place to protect sensitive data and mitigate risks.
You’ll also want to consider the potential regulatory implications of third-party risks on your organization. For instance, if a vendor experiences a data breach that compromises customer data, your company could be held accountable for regulatory violations – even if the breach happened outside of your direct control. By prioritizing third-party risks with compliance implications, you’ll be more able to proactively address gaps in your risk management program and ensure adherence to regulatory requirements.
5. Use TPRM software to streamline your processes
It is critical to understand from the outset that, while you should be aiming to achieve 100% coverage, this doesn’t involve evaluating every vendor. For most companies, an intensive programme of planning, testing, evaluation, and remediation for every vendor, annually, is impossible. But, because tiering provides you with an indicative importance and risk level of the vendor to your business, it allows you to focus your resources on the ones that matter most to your business.
To get closer to that 100% coverage, third-party risk management software can streamline and automate parts of the process to make it far more efficient. Automatic follow-ups, easy-to-access dashboards, and intuitive vendor questionnaire building tools make your third-party risk management a smoother operation.
SureCloud’s GRC comes with dedicated TPRM functionality. SureCloud's third-party risk management solution enables you to proactively manage risks, including cybersecurity threats, compliance challenges, and operational disruptions, providing real-time insights for informed decision-making. Streamline your vendor risk processes with automated risk assessments, enhance transparency, protect your company's reputation, and ensure effortless regulatory compliance – all in one central platform.
In conclusion...
Third-party risk prioritization is not a one-time exercise but an ongoing process. Establishing a framework for ongoing monitoring and review will help you keep pace with evolving third-party risks. Implement automated tools and systems to monitor vendor performance, security incidents, and compliance status in real-time (again, the right TPRM software is your best friend for this).
Finally, regularly review and update your risk assessments based on new information, changes in business requirements, or external factors that may impact third-party relationships. The more proactive your approach, the better your chances of staying secure as your vendor portfolio grows.
