What are Third Party Risk Assessments?

Introduction to third party risk assessments in cybersecurity management

An analysis of the risks that third party vendors in your supply chain present to your firm is known as third party risk assessments also called a third party assessment. These third parties may be suppliers, service providers, vendors, or makers of the software.

Third party risk assessments within a comprehensive cybersecurity management program assesses all security aspects involved in outsourcing to third parties, encompassing risk criteria establishment and third party partner and vendor onboarding and screening.

The majority of businesses today work in conjunction with a variety of third-party vendors. Their day-to-day operations often depend on these external relationships for needs like supply chain management and resource development. These partnerships are widely necessary to remain competitive in the marketplace — regardless of industry. Third party vendors allow for greater convenience, faster production speeds, and lower costs.

However, these external relationships pose a significant cybersecurity threat to a business if unchecked. Every outside partnership risks opening the door to malicious actors invading their network and gaining access to sensitive information. A third party assessment, also sometimes referred to as a third-party risk assessment is an in-depth examination of each vendor relationship a business has established. This assessment looks to identify possible security risks associated with the vendors and how these pitfalls can be mitigated.

It is no secret how devastating a successful cyberattack can be. According to IBM’s 2023 Cost of a Data Breach Report, “the average impact of a data breach on an organization with fewer than 500 employees is $3.31 million; the average cost per breached record is $164.” And, with a new report from Netwrix announcing that 68% of organizations suffered a cyberattack, it pays to take mitigation seriously and invest in identification and monitoring practices to protect your business.

Why invest in third party risk assessments?

Third party risk assessments aren’t meant to poke holes in a business’s security measures, but instead, help educate companies on possible risks that exist within their partnerships. Therefore, decisions can be made on how to fix the threat or terminate the relationship if necessary. As the business has grown to become more digital, companies are starting to dedicate more time and resources to their cybersecurity efforts.

Many businesses do have an Incident Response plan in place for when a breach does occur. Yet, many of these plans lack true detail or action steps to follow when the breach is the result of an external vendor relationship. Little knowledge is known about the timeline that follows and what must be done.

• When should the third party vendor be notified of the breach?
• Who specifically within the vendor organization should be contacted?
• What information should be communicated to the vendor regarding the breach?
• How will the vendor’s role in the breach be addressed or mitigated?
• What steps will be taken to prevent future breaches in the vendor relationship?

By conducting annual third party risk assessments or whenever a new vendor is brought on, this investment helps ensure that your business may continue to operate under the safest possible conditions. As more businesses look to collaborate or outsource parts of their daily operations or production, the avoidance of third-party ties remains difficult. This causes businesses to conduct in-house or independent reviews of all partnerships in an act of self-preservation.

Third party risk assessments: The process

Proper third party assessments process can usually be completed in a couple of days, depending on the number of vendor relations. When an assessment is conducted, an individual cybersecurity specialist or team of cyber professionals will audit every single external partnership, looking at a variety of aspects, such as:

• Documentation management 
• Licenses and certifications 
• Insurance policies 
• Network diagrams

Most auditors will employ a risk management framework from the International Organization for Standardization (ISO) or the National Institute for Standards and Technology (NIST) to analyze your third-party risk management program.

Set up vendor risk criteria

Several vendor risks are common across many industries.

• Operational risk: Determine the importance of the vendor’s service in your organization’s business activities and operations.
• Data/privacy risk: Determine whether the vendor will handle or store critical information like customer, donor, or employee information.
• Transactional risk: Establish if the vendor will handle financial transactions for your organization.
• Replacement risk: Determine whether you can replace the vendor service if they come to a halt. 
• Downstream risk: Determine if the vendor will use sub-contractors who might deliver certain services for your organization.  
• Compliance risk: Ensure that the vendor complies with your organization’s regulations.
• Geographic risk: Determine the physical location of the vendor and if it is secure to deliver services for such locations.

Perform third party onboarding and screening

Experts advise creating a formal structure for your third-party risk management program to standardize all third party onboarding and screening. Businesses should also take comprehensive real-time risk-checking and containment methods to ensure a thorough third-party risk assessment.

Easy and manageable assessment

Your third party assessment should not be gruesome. A good assessment is thorough, informative, easy to understand, and comfortable to manage. Understand that undertaking assessment is one of many tasks your vendor does, but it also ensures that critical information is collected. 

Ensure your assessment is an ongoing process and not a one-time job. Create a process that ensures continuous supervision for vendors who might be risky. 

Use technology as part of your risk assessment process

It is prudent to utilize technology to aid your third party risk assessment. Technology and innovation assessment software helps a smooth and comprehensive vendor assessment process.

Utilizing technology for your assessment process has the following benefits: 

1. 1. It offers you command over a system that allows you to frequently monitor any number of third parties and the hazards involved.
   2. It influences the scope of your evaluation while improving your capacity to anticipate and analyze internal and external third-party threats.
   3. It assists you in gathering and performing a macro-analysis of reliable data on third party risks across several assessments, which will improve any future vendor selections made by your company.
   4. It allows you to examine the effectiveness of risk assessment metrics, which identifies the caliber and dependability of your data.

Managing third party risks in cybersecurity can be done in a few ways. Firstly, organizations should assess potential third party risks and create a plan to mitigate those risks. This plan should include measures such as requiring third-party vendors to use secure authentication protocols, encrypting data transfers, and performing regular security audits. Additionally, organizations should create a comprehensive cybersecurity policy that outlines specific requirements for third party vendors, such as requiring the use of the latest security technologies. Finally, organizations should regularly monitor third-party vendors to ensure they are complying with the established security policies.

Need a third party risk assessment?

If you’re looking for more guidance on how to complete third party risk assessments or need immediate security assistance, Cyber Defense Group can help. We’re committed to building a more secure future for mid-market companies. We aim to empower your innovation and growth with our services, helping you maintain a competitive edge in the digital age. Your protection is our priority.

Get in touch, and learn how Cyber Defense Group can help you manage your company’s third-party risk.