Vendor Risk Management Best Practices
Vendor risk management is hard. And it’s getting harder. But it doesn’t have to be.
Business units are outsourcing more of their operations to third-party suppliers. In turn, these suppliers outsource to their own service providers. It’s undeniable, the average organization’s exposure to third-party risk and fourth-party risk has never been higher.
Many organizations myopically focus on operational risk factors in their supply chain, such as service levels, quality standards, KPIs and service levels, ignoring the largest risks. Namely, the reputational and financial damages from security breaches.
Vendor risk management can help prevent data breaches and is increasingly a key part of regulatory compliance. This is especially true for financial services organizations with the introduction of CPS 234, the Gramm-Leach-Bliley Act and PIPEDA.
Here are 8 best practices any vendor risk management program will benefit from.
Table of contents
- Keep an accurate vendor inventory
- Create a vendor assessment process
- Continuously monitor and assess individual vendors
- Define vendor performance metrics
- Monitor fourth-party vendors
- Plan for the worst case scenario
- Form a dedicated VRM committee
- Communicate constantly
- How UpGuard can help scale your vendor risk management program
1. Keep an accurate vendor inventory
Without an inventory of your third-party relationships, it’s impossible to measure the level of risk vendors introduce.
Keep in mind, third-party vendors may not have the same security controls as you. This is why a third-party risk management framework must account for your vendors’ potential risks
Even security incidents at small vendors can result in large cyber attacks.
Keeping inventory of your vendors is the first step to any vendor risk management program. Security issues can occur at any part of the vendor lifecycle including after the vendor relationship as ended.
2. Create a vendor assessment process
Vendor questionnaire are key to any vendor risk management strategy. For many industries, they are a regulatory requirement.
The problem with traditional vendor questionnaires are they are point-in-time, subjective and time consuming to create.
If you’re not sure where to start, use our vendor risk assessment questionnaire template. Use it as a baseline and remove or add questions based on your risk tolerance.
A good template reduces the operational overhead of assessing and onboarding new vendors, without compromising on security.
3. Continuously monitor and assess individual vendors
The biggest issue with traditional third-party risk management processes is they are point-in-time, expensive and subjective.
Ongoing monitoring and assessment of individual vendor risk is difficult.
Even for the largest organizations.
One answer to this problem is security ratings.
Security ratings are a quantitative measurement of security posture, akin to how a credit rating measures lending quality. As security ratings improve, so do security postures.
Security ratings providers provide real-time, non-intrusive measurement of any vendor’s security posture. Instantly providing an aggregate view of vendor performance and key risks shared across your vendor portfolio.
Allowing vendor management teams to continuously monitor individual vendors for security issues.
By using security ratings, you can scale your organization’s third-party risk management program without increasing headcount.
4. Define vendor performance metrics
If you’re a HIPAA covered entity, you are liable for vendor data breaches. Even if you aren’t legally liable, data breaches cause reputational and financial damages.
5. Monitor fourth-party vendors
Cybersecurity risk doesn’t stop with third-parties. There is a good chance your vendors have vendors. Those vendors introduce fourth-party risk.
Fourth-party risk management requires even greater consideration than third-party risk management. You likely have no legal contract with fourth-parties.
Many third-parties fail to manage fourth-parties to the same rigor as you manage your third-party vendors. We see this as a major risk management gap.
Fourth-party risk management can reduce:
- Remediation efforts
- Total risk exposure
- Provider selection processes
And improve due diligence, risk monitoring information and review.
6. Plan for the worst case scenario
Your third-party management plan must account for the removal of vendors who fail to mitigate risks in a timely manner.
7. Form a dedicated VRM committee
One of the best practices you can implement is a vendor risk management committee.
This is a dedicated team with senior management represented.
The committee is tasked with dealing with potential and existing vendors.
8. Communicate constantly
The most important thing is to communicate with your vendors.
Don’t assume they know what you expect from them.
Communication can reduce misunderstanding and allow you to proactively address issues before they become security incidents.
9. How UpGuard can help scale your vendor risk management program
Companies like Intercontinental Exchange, Taylor Fry, The New York Stock Exchange, IAG, First State Super, Akamai, Morningstar and NASA use UpGuard to protect their data, prevent data breaches, monitor for vulnerabilities and avoid malware.
UpGuard Vendor Risk can minimize the amount of time your organization spends managing third-party relationships by automating vendor questionnaires and providing vendor questionnaire templates that map to the NIST Cybersecurity Framework and other best practices. We can help you continuously monitoring your vendors’ security posture over time while benchmarking them against their industry.
UpGuard BreachSight can help monitor for DMARC, combat typosquatting, prevent data breaches and data leaks, avoiding regulatory fines and protecting your customer’s trust through cyber security ratings and continuous exposure detection.
If you’d like to see how your organization stacks up, get your free Cyber Security Rating.
Originally published at https://www.upguard.com.