Written by Tom Turner, CEO and President, BitSight
In my experience there are a number of common blind spots associated with vendor risk management (VRM), or ‘third party risk management’ as it is sometimes called. In this article I will share with the readers what I see as six top misconceptions surrounding VRM and suggest strategies for businesses to overcome or avoid some of these pitfalls.
- Only the highest value business relationships have the most inherent risk
Today we see many high profile data breaches hitting the headlines. That’s because businesses are more connected than ever before, and organisations are having to deal with increasing numbers of third parties. Often, there will be a direct relationship where data is exchanged. However, we’re seeing more indirect relationships where a third party may not be deemed critical to the organisation’s service or product, yet they still have the potential to introduce risk. Take the Netflix ‘Orange Is The New Black’ leak in April last year from Larson Studios. This was a post-production company that was probably thought to be a distant vendor in the supply chain, yet when they were hacked it had a massive impact on the core business.
Likewise, many businesses are using the same third party, which is often unavoidable. For some products and services, there’s only one dominant player in the market to choose from if you need to outsource. This situation can result in massive downstream effects if there’s a data breach, compromise, or service disruption. For example, the NotPetya malware hit many companies in Ukraine particularly hard, such as the shipping giant Maersk. This happened because a Ukrainian based software accounting platform was compromised, and the ransomware spread to its customer base.
Breaches and outages aren’t just resulting from typical third parties anymore. They’re also stemming from more distant vendors. While these organisations may not have access to your network, you may rely on their technology or services which could cause considerable risk downstream.
- Your most trusted form of assurance is a diligence questionnaire
VRM programmes have traditionally focused on setting contractual obligations for vendors. Risk managers would periodically check on whether vendors were meeting certain obligations and move on to the next item on their “to do” list. For a long time, the only way to manage risk was to use questionnaires, audits, and penetration tests. This has changed, and businesses are now actively ‘hunting’ for risk. They are consuming multiple data feeds about operational, financial, and cyber security risk. In doing so, many organisations have taken a more collaborative approach with vendors, rather than a combative one. The notion that VRM is a game of strong arming between risk and legal departments is changing. Organisations and their vendors are having more constructive dialogues.
- VRM is not a Board level issue
According to Gartner, 80% of security risk management leaders are being asked to present to senior executives on the state of their security and risk programme and 75% of Fortune 500 companies are now expected to treat VRM as a board level initiative to mitigate brand and reputation risk. Boards are beginning to request updates more than once a year and this has led to the emergence of security committees.
The challenge for risk managers is how best to contextualise the company’s level of risk. This is where objective, quantitative measurement can really help. For example, being able to say that the aggregate level of cyber risk posed by vendors has dropped 20 percentage points is a lot more insightful than saying, “We’ve mandated that all of our vendors implement multifactor authentication.” It’s important to learn how to speak the right language to the Board.
- Regulations and VRM programmes are two different issues
The impact of regulation very much depends on the industry sector, but if you are subject to any regulation at all, then it needs to be included in your VRM programme. Regulations that encompass all industries, such as General Data Protection Regulation (GDPR) which comes into force on 25th May this year, will need to be part of the risk management programme of every single organisation. Article 32 states that organisations that collect personal data must have rigorous due diligence processes to ensure that appropriate controls are in place before sharing data with vendors.
- VRM can be handled manually with existing resources
Relying solely on subjective point-in-time questionnaires can leave a lot of risk unidentified or unaddressed. Many companies now understand that having a continuous objective view is needed.
Also, you can’t simply just throw people at this problem. There are too many vendors connected to the enterprise and not enough risk professionals in the world to manage them. Companies need to automate processes whenever possible to manage this risk. There’s going to be a huge breakthrough when businesses across all sectors recognise the importance of automation and allow human intervention when urgent action is required.
- Engaging with vendors and the supply chain to correct risk is difficult and confrontational
Companies have different approaches for engaging with vendors and some have more influence than others. However, we are learning that presenting data and accessing a common platform provides significant benefits.
Giving non-customers free access to a security ratings platform via a trusted partner will allow third party vendors to investigate potential network issues and allow access to remedial resources. This is a good example of how engagement with vendors can be driven by objective data. It also offers vendors a benefit in return for their engagement and reduces some of the confrontation that can accompany risk assessment.
With economies of scale at play, there are potentially long-term benefits too. With many organisations using the same vendors to rectify issues, we can reach a wider audience and the whole digital economy is better off.
To learn more about vendor risk management, visit www.bitsighttech.com