Companies today rely on third parties like vendors for an ever-evolving variety of purposes: to help make an organization more efficient, to bring in new skills or technologies and to improve a product, to name a few. These dependencies have only grown with the rise of remote, hybrid and in-office workspaces.
While working with third parties offers clear benefits, these relationships can also make an organization vulnerable. Vendors often have access to valuable company systems and sensitive data. Consultants might be accessing the system from a different location or a different server. Each vendor may have its own methods for data-sharing and collaboration, with varying levels of security. Meanwhile, are these third parties keeping up with the latest compliance and regulatory standards?
Given all of these factors, CCOs and compliance teams have a lot to worry about as they navigate the rapidly evolving risk landscape — and a lot on the line. Just one vendor misstep, oversight or incident can jeopardize compliance, tarnish an organization’s reputation and negatively impact performance.
Now more than ever, organizations need the right tools to ensure they’re properly managing, monitoring and training their third-party resources. Here’s why — and next steps for protection.
Introducing New Vulnerabilities from Every Angle
So, just how much damage can a third party or vendor do?
Quite a bit, it turns out. Organizations need to consider potential threats across the business:
- Compliance. When a vendor doesn’t comply with the laws and regulations of its industry and region or your company’s procedures in areas like cybersecurity, you may face repercussions for lack of compliance.
- Reputation. A vendor could harm your organization’s public image through incidents like the loss or theft of customer information or public interactions that fail to meet company standards. Compliance violations could also attract damaging public scrutiny.
- Finances. If a vendor’s high costs or low revenues cause them to miss financial expectations, it could have a domino effect on your bottom line.
- Operations. A vendor’s financial instability — or even bankruptcy — can negatively impact their services to you, and the products and services you deliver to your customers.
- Cybersecurity. If a vendor fails to follow proper protocols for accessing systems and safeguarding data, it could result in compromised systems, cyber attacks or data breaches.
These data breaches loom particularly large, and can be just as costly — if not more so — than physical damage to a vendor’s equipment or property. In a recent study commissioned by Diligent, Forrester found that companies encounter 1.7 material data breaches yearly on average. And according to IBM’s Cost of a Data Breach 2022 report, the average cost of a data breach is $4.35 million.
The IBM report also notes that 83% of companies will encounter a data breach, often more than once. Many of these data breaches come from third-party vendors.
Technology to the Rescue
As the IBM report points out, faster is better when detecting, responding to and recovering from threats. For example, organizations equipped with solutions like a fully deployed automation and artificial intelligence tool are able to identify and contain a breach faster than organizations without one, citing savings of 28 days and $3.05 million.
But threat monitoring is just one way technology can help your organization contain third-party risk. Your organization can also use a comprehensive third-party risk management program (3PRM) to drive consistent, compliant performance from your vendors.
- Accurately account for compliance: Is a vendor falling behind in its licenses, registrations, or GDPR policies? Don’t let their risk become yours. A robust 3PRM brings data together and delivers visibility into vendors’ actions, to ensure compliance with all relevant regulations and laws.
- Keep expectations and standards aligned: Even as your operations, your vendor footprint, and relevant regulations evolve, 3PRM — particularly when managed through a unified platform — helps keep everyone on the same page and aligned with your organization’s goals, standards and expectations.
- Maximize efficiencies: Monitoring and managing a growing array of third parties, and keeping them up to speed on expectations, is a lot of work. The streamlined processes of technology-powered 3PRM help you save time and money as you stay on top of risk. Meanwhile, features like dashboards and reports give you a view into additional revenue opportunities.
- Protect the company’s reputation: Which risks should take top priority? Are remediation efforts on track? With 3PRM and a unified view, organizations can make informed decisions driven by data, strengthening their ability to safeguard their organization’s good name among stakeholders and in the marketplace.
Next Steps for Stronger 3PRM
Getting started with third-party risk management can seem daunting. There are many processes involved: vendor onboarding, ongoing monitoring, incident remediation — the list goes on. And effective risk management policies require many layers, from assessing a third party’s security to guiding vendors on handling sensitive data.
It may be helpful to break the process down into steps. Start with an inventory of all of your third parties. Then move forward with activities like the following:
- Research industry best practices for third-party risk management processes and policies — and learn how to create your own
- Choose your metrics, like key performance and risk indicators, to distill complicated security measures into easy-to-read numbers
- Assign a risk score to each vendor
- Get everyone on the same page through shared procedures for risk management
- Mitigate risk, even in an evolving environment, by continuously updating these risk management policies
- Get smart about application controls, the “checks” used in your operations and by your vendors to authenticate applications and data and ensure that only authorized users can take action with a company’s digital assets
- Study up on risk management frameworks, so you can select the right one for your organization’s needs
In short, while third parties bring multifaceted value to operations and the bottom line, these vendors can also introduce potentially costly risks. With effective third-party risk management, you can strengthen your ability to monitor and mitigate these risks — more efficiently, securely and cost-effectively.
Take the next step. Contact Diligent today to learn more about managing vendors and other third parties.