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9 Ways to Improve Third Party Risk Management

Most, if not all, companies outsource some parts of their operations. Outsourcing to third parties is inevitable for most corporations to cut costs, aid the company’s capabilities, and bring outward innovation. However, many companies trust and let third parties access their data and information. As a result, cybersecurity problems often arise because of the lacking security in third party companies.

In a 2020 survey conducted by Deloitte, 84% experienced a third party incident in the last three years. Furthermore, 94.2% of the firms had a low to moderate confidence in the tools used to observe third-party risks. However, these risks are unavoidable once they are engaged with the company and have access to their system and data. Other risks that third parties bring with them in a company include:

  • Reputational impact on the company.
  • Increased dependency on third parties and thus becoming vulnerable.
  • Loss of customer-confidence.
  • Financial losses.
  • Unknown risks for when they have access to sensitive systems/information.
  • Cyber threats.
  • Increased resiliency risk.
  • Compliance risk and strategic risk.
  • Fraud and litigation.

Despite these disadvantages, companies still need to outsource to third party vendors to run efficiently or reduce their cost of operation. Therefore, companies cannot exclude third party partnership to solve third party risks. With proper management and the right amount of oversight, third party risks can be minimized and avoided. Here are 9 ways you can reduce third-party cyber risks:

1.      Identify the Third Party Position

First you must understand what your third-party vendor has access to within your organization. After all, not all third parties have the same job. Some work for customer service and some might deal with product delivery. Identifying your third-party vendor’s responsibilities will help determine their network access and what data they will be allowed to access.

Prior to moving forward with a third party, you must know the exact job of the vendor. This way, you can track down what they have accessed later to ensure the safety of your organization’s network. Understanding their responsibilities make it easier to keep track of their activities.

Knowing your vendor’s responsibilities helps you delegate the jobs that needs to be sorted in your company. By giving specific tasks and levels of access to a third party, you prevent irrelevant personnel from accessing your company’s sensitive information. This is important because you do no have control over the third party’s actions. Therefore, to ensure the third-party company does not negatively affect your company, you must limit their capabilities and access to your company.

2.      Perform Business Impact Analysis

Business Impact Analysis (BIA) assess the recovery objectives and functionality of a particular area of the system. The area may be a department, location, or any business process running in the system. Through this systematic evaluation, the board of directors can judge the intervention of a third party during the entire process.

BIAs determine the potential consequences of actions taken by third parties. A BIA considers operational and financial impacts including:

  • Decreased sales and income.
  • Delayed sales or income.
  • Increased expenses.
  • Regulatory fines.
  • Contractual penalties.
  • Customer dissatisfaction.
  • Delayed business plans.

With the BIA, your company can determine your response plan to cyber threats. This helps prioritize which areas in your company needs to be addressed after a cyber breach. As a result, the damages caused by third party cyber risks will be minimized.

3.      Evaluate the Third Party Extensively

Prior to giving third parties authority to access your network, evaluate the third parties in detail. Investigate their previous records and run the on-boarding process for the third party you wish to work with. The board of directors and senior management should analyze fully and perform service level agreements (SLA).

Ask for the accountability of the third party and the use of all other parties. Evaluate the risks the organization may face by working with the third party. This will help determine your response plans to any potential cyber threats related to the third party.

Furthermore, evaluate whether your company can handle the risks related to the third party. If the risks are manageable, then proceed working with the third party. If not, look for other solutions to ensure the safety and security of your company.

4.      Limit Third Party’s Access to Information

The third party takes control of parts within your company. As mentioned earlier, your company has no control over the third party’s actions after they access your company information. Therefore, ensure you do not expose all personal data and information to the third party.

To do this, refer to the first method of identifying where the third party lies in the system. Only give third parties access to parts they need to know. Everything else must be kept confidential to protect the company’s privacy and data.

Limiting your third party’s access helps protect your company’s system and network. Doing this is important because you cannot be fully certain on the third party’s security system. Therefore, it is possible for cyber criminals to breach into your system through a third party. From there, external parties can manipulate and exploit the organization with the private information the third party has access to.

5.      Establish Policies and Standards

Establish a pragmatic code of rules for your company. Ensure there are clear ownership principles in the system. By having a clear view of how much control a third party has, it will be easier for management to control the system’s operations.

Preventive controls should be given priority over detective controls. To have more autonomy in the company, decentralized management will help. However, this causes the organization to lose common oversight. Create standards and policies that apply to everyone and have a properly planned out strategy from senior management.

Clear and concise policies and standards allows management to react quickly and efficiently by following the steps listed in the policies. Response measures will thus be faster, and the company will also detect risks faster.

6.      Monitor Third Party Actions Constantly

deloitte survey 62% of third party monitoring is monitoring inadequate

In the 2020 Deloitte survey, 62% think ongoing monitoring of third parties are inadequate. Therefore, you should map all third parties working for your organization and keep their actions under surveillance. Do not take the risk of letting them do whatever they want. To do this, take notice of every move they make and adopt a coordinated approach for dealing with the third party.

Manage third party ties with the company from the start of meeting with the third party until the termination of the contract. This allows you to better evaluate and respond to cyber threats faster. You should also monitor all risks involved with the third party and observe the third party’s performance to see their level of commitment. Continuous monitoring gives visibility to the ongoing risks and potential threats from your third-party vendor.

7.      Business Engagement is Necessary

Business engagement is the onboarding processes in a scenario. The ongoing relationship with a third party must be kept under surveillance. Third party risk management includes the onboarding of new third party vendors. The operational and financial commitment of each provider should be calculated, and their engagement must be measured.

Detailed contracts such as data storage, costs, and legal documents should be stored and organized by management. Storing this information will allow management to easily access a third party’s information should a problem arise. Business engagement allows your company to monitor the third party more easily and helps in determining your organization’s response plans.

8.      Have Alternative Vendors Available

Contingency plans should not be underestimated for companies that involve third parties. You cannot fully trust any outside group with your company, so always have a response and backup plan. Create plans just in case your vendor does not do their job well or if they prove to be harmful to your organization. Always have alternative vendors available, so that you can use the substitute’s services if a problem arises.

Alternative providers should meet your required services within a limited time to ensure your company will continue to function until a permanent solution is found. After all, shutting down your company results in loss of productivity and thus loss of income. Therefore, having an alternative, backup vendor available helps the company continue running even after a security breach or other harmful incident.

9.      Use Technology to Protect Your Network

With the increasing amount of technology on the market, use the internet and other applications to decrease the risk of third-party involvement in your business. For governance and risk prevention, many companies create their own software to complete some of their projects and tasks. Some also use GRC (governance, risk, and compliance) software.

In this case, using cybersecurity automation helps detect and manage threats to your network. Automation allows you to protect and manage your network efficiently. However, keep in mind that with the use of technology, you must update the application to decrease the cyber threats. Failing to update your system will lead to vulnerabilities and holes in your network.

Increase Your Efforts on Third Party Risk Management

With these 9 tips, improve your third party risk management to prevent threats from damaging your company. Observe and use all your available resources to ensure your third party vendors can note take advantage or create a vulnerability in your system.


References

  1. Deloitte. (2020). Extended Enterprise Risk Management Global Survey 2020. https://www2.deloitte.com/us/en/pages/risk/articles/third-party-risk.html

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