Third-party risk assessments are one of the most crucial components in an organization’s ability to prevent cyber disaster at the hands of a third-party.
Understanding Third-Party Risk
Recently, businesses started to rely on third parties. Third-parties include business relationships with organizations such us: vendors, contractors, and cloud service providers. Companies utilize third-parties for various business needs, including: licensing, logistics, sales, legal, technology, human resources, customers support, and so on.
Even though relying on third-party service providers saves businesses a lot of time and effort, it also opens a business to considerable risk. These risks can include: business exposure, regulatory compliance, security breaches, contractual failure, etcetera.
Third-party risks are the potential hazards that arise from an organization’s reliance on these outside parties to perform services, operations, or activities on their behalf.
All organizations rely on one or more vendors or contractors for various business needs. Third-parties pose many threats. Not addressing these threats arising from third-parties may result in the following:
- Regulatory Fines
- Legal Issues
- Data Breaches
- Damage to Reputation
- Financial Losses
Why Are Third-Party Risk Assessments Important?
With cyber threats on the rise, it is crucial for businesses to increase their efforts in analyzing and assessing the risks involved in utilizing third-party providers.
A few of the significant reasons why third party risk assessments are so vital are because they enable businesses to ensure that:
- The third-party service providers comply with all of the organizations required regulations and mandates
- All sensitive and confidential information shared with them is safe and stored securely
- There are no unethical practices used in their delivery
- They handle service disruptions effectively and efficiently
- The supply chain network is safe and secure is operating effectively
- The system performance or the service operations are up to a satisfactory level
What Should Organizations Do To Mitigate Third-Party Risks?
A holistic approach is needed in order to properly assess third-party risks as part of the risk management process. It helps organizations to be proactive rather than being reactive. Risk assessment also helps in identifying which providers pose higher risks. Identifying these issues allows the business to plan strategically and avert a major problem at the very beginning. To mitigate these risks, businesses need to:
- Categorize vendors and contractors based on the risk impact level (Critical, Non-Critical, Moderate, etc.)
- Remember that risk assessment is a continuous process and ensure to conduct reviews and reevaluate the process and third parties either biannually or annually.
- Stay on top of all regulatory, mandate, and security compliance requirements.
- Keep senior management teams informed when any changes are made to the risk assessment process.
- Assess the risk factor during the vendor selection process.
It essential for business owners, executives, and managers to know about third-party risk assessment. Further, they must understand how it is a crucial component in an organization’s “toolkit” to mitigate the risks associated with third party partners. Third-parties can be a tremendous asset to an organization. However, it is responsibility of the organization to conduct proper due diligence and assess those parties before a relationship is initiated. It is the business’ duty to their shareholders, partners, employees, and customers to do all they can to secure and protect their data, profits, and reputations. In an ever increasingly service-based economy, third-party risk assessments are a key element in that effort.