There are many ways to increase the security posture of a business. This includes making networks more secure and training staff not to fall for social engineering. However, one type of risk that's often overlooked is third-party risks.
If a business is hacked, the attacker can often inflict damage on any business connected to it. So, if one of your third parties is easy to attack, your business may be at risk indirectly.
Third-party risk management is designed to reduce this problem. So what is third-party risk management, and how should it be implemented? Let's find out below.
What Is a Third Party?
A third party is any entity which your business works with. It includes your suppliers, your vendors, your business partners, and the service providers that you use. These businesses may only provide a small part of your business, but that doesn't stop you from relying on them.
Many third parties also require access to your business's network to fulfill their role. This means that if they are hacked, so is your network.
What Is Third-Party Risk Management?
Third-party risk management is the practice of identifying and reducing the risks that arise from working with third parties. It involves looking at who you are currently working with, figuring out what risks they face, and putting up safeguards to protect your business from them.
While it isn't possible to avoid working with third parties, the purpose of third-party risk management is to do so as safely as possible. Depending on your business, this may involve using different third parties or insulating yourself from those that you have.
Why Is Third-Party Risk Management Important?
It's important not to underestimate the risk posed by third parties. Here are a few reasons why:
Businesses Are Increasingly Reliant on Third-Parties
Due to the increased ease of outsourcing, many businesses now rely on third parties for everything from data storage to payroll. Most companies would be unable to function properly if an important third party suffered a severe enough attack.
Third-Party Security Varies Widely
The security practices of third parties vary widely. Understanding what parties pose a risk to your business often requires careful investigation. Third-party risk management ensures that you understand the security posture of each party and replace them where necessary.
Third-Parties Often Access Your Network
Third parties often require access to your network. It's therefore commonplace for third parties to be given their own user credentials. If those credentials are stolen, the hacker can access your network.
You Are Liable for Third-Party Attacks
Third parties often store confidential information; therefore, your business will be liable if the third party is hacked and that information is stolen. If your customer's information leaks, you are responsible, even if it was the third party's fault. This not only opens your business up to reputational harm but could also leave you susceptible to prosecution.
How to Implement Third-Party Risk Management
Third-party risk management is a broad activity, and the specific steps taken depend on the size of a business and the types of third parties it works with. Most companies, however, will benefit from the following steps:
Inventory All Third Parties
To understand the risk posed to your business, you need an inventory of all third parties that you currently work with. This inventory should include all third parties regardless of size. You should also document which parts of your network and data are available to each one.
Categorize Third Parties by Risk
Third parties vary widely in terms of risk. Therefore, a business should categorize each third party according to its risk level. This involves looking at what can happen if they are hacked and the likelihood of that occurring. This is important because it lets you focus on the high-risk third parties first.
Consider All the Risks
Third-party risk management is not only about cybersecurity risk. They can harm your business in many ways that don't involve them being hacked. If they stop providing the agreed-upon service for any reason, your business can be in trouble. And if their reputation is harmed, so is your reputation by association. Therefore, the risk assessment should include all potential risks, not just security.
Obtain Additional Information From Third Parties
Third-party risk management requires a lot of information about third parties, usually obtained by sending questionnaires. It is a common practice, and you can purchase standardized questionnaires designed for this purpose. Of course, you can also make your own questionnaires, but you must understand what questions to ask before going this route.
Minimize the Risks
Once you've made an inventory of all third parties and their risks, you can attempt to reduce the risks. This may involve tweaking your network, such as restricting access or requesting that third parties implement additional security policies. Sometimes, it may also involve changing the third parties you work with.
Set Up Third-Party Monitoring
Third-party risk management is a continuous process that requires regular monitoring. You can manually monitor third parties by performing regular assessments. Or you can use software that monitors third parties automatically. Third parties can change their behavior, and the threats they face are constantly changing.
Repeat for New Third-Parties
You should repeat the above steps whenever you initiate a new third-party relationship. All additional third parties should be carefully investigated and selected according to the risk they pose. You should only provide each of them with the level of network and data access necessary to perform their purpose.
Have an Incident Response Plan
Incident response planning is the process of creating procedures that you can carry out in the event of a security incident. Third-party risk management doesn't necessarily prevent third-party incidents, but it can be used to better predict those most likely to occur. Incident response planning should then be conducted to prepare for those events.
Third-Party Risk Management Is Important for Any Business
Businesses now rely on third parties for a wide range of services. It's also not uncommon for them to be given access to secure networks and be responsible for storing private customer information. In this scenario, an attack on such a party can have significant consequences.
Third-party risk management is an increasingly important part of securing a business. All businesses should clearly understand who they work with, what risks they involve, and how they can mitigate those risks.