Businesses across most industries are becoming increasingly reliant on third-party vendors to support critical business functions, but with the granting of access to a business’s internal networks comes cyber risks and data breach threats. In fact, more than 50% of businesses using third-party vendors have experienced a data breach involving confidential information.* Given the current supply chain matters impacting several industries combined with the state of the economy, there’s no denying management is aware of the constraints they operate under, especially with it comes to depending on third-party vendors to provide crucial materials and services.
7 Types of Third-Party Risks
As a business’s networks continue to grow more complex and the concern regarding third-party risks amplifies, we’re sharing seven types of third-party risks to be aware of along with practical tips to lessen the impact of related risks.
1. Cybersecurity Risk
Ransomware can impact firms of all types, taking their systems offline and making them unable to perform. Top-of-the-news ransomware attack firms such as the Colonial Pipeline hack highlight that cybersecurity attacks do not solely impact firms processing confidential data. The supply chain impact from just one piece of its critical infrastructure supporting fuel distribution was monumental for firms that needed fuel to deliver goods or operate equipment. Are your key suppliers secure enough to fend off ransomware attacks and resilient enough to quickly stand back up into operation should an attack find success? Do you have a plan to address if and when a key supplier goes offline unexpectedly?
2. Compliance Risk
Firms, including those using third-party vendors, operate with risk from violations of laws, regulations and internal processes that your organization must follow to conduct business. The laws that apply to each organization vary by sector. Non-compliance with these regulations usually results in substantial fines, so it is crucial that you ensure your vendor’s cybersecurity compliance efforts align with your firm’s regulatory requirements. Are your third-party vendors operating in a manner that maintains compliance with your industry’s rules and regulations?
3. Reputational Risk
Reputational risk concerns the public perception of your company. Third-party vendors can impact your firm’s reputation by acting inconsistently with your standards, losing or disclosing customer information or by violating laws or regulations. Have you identified relationships that might put your firm’s reputation at risk?
4. Financial Risk
When vendors are unable to meet the fiscal performance requirements set in place by your organization from either excessive costs or lost revenue, their performance on your behalf is likely to be impacted. Are you monitoring the financial viability of key vendors?
5. Operational Risk
Operational risk occurs when there is a shutdown of vendor processes. Third-party operations are intertwined with organizational operations, so when vendors are unable to provide their goods or services as promised, organizations are usually unable to perform their own daily activities. To limit operational risk, your organization should create a business continuity plan so that in the event of a vendor shutdown, you have a plan from which to operate.
6. Geographic Risk
With the volatility in the world today, where a key third party operates geographically presents risk to your firm. Are you aware of the location from which key vendors are delivering goods or services to your businesses?
7. Strategic Risk
Strategic risks arise when vendors make business decisions that do not align with your organization’s strategic objectives. Strategic risk can influence other forms of risk. Do you monitor key vendors for strategic risks?
Ways to Mitigate and Monitor Third Party Risk
GBQ recommends mitigating risk by first maintaining a vendor catalog ranked beginning with the riskiest or crucial relationships. The types of risk posed by the third parties should be identified, and processes should be in place so vendors presenting the greatest risk to your business can be monitored and mitigated.
Below are four processes you can implement to monitor and mitigate third-party risk at your organization:
1. Business Continuity Plans
During football season, our favorite team does not initiate a single down of play without relying on a playbook. The business continuity plan is your firm’s playbook for what to do when critical service providers or key suppliers fail to deliver due to active risk.
2. Risk Assessments and Security Questionnaires
Third-party risk assessments use vendor questionnaires and threat intelligence to help organizations determine the level of risk individual vendors pose to a business.
3. Third-Party Attestations as Due Diligence
For key vendors handling funds or information, asking for a third-party attestation from a trusted third party such as a CPA firm may provide additional due diligence to your risk management efforts.
4. Continuous Monitoring
Organizations can improve their ability to identify and mitigate vendor risk before it becomes problematic by implementing continuous risk monitoring tools.
Curious what occurs to your supply chain when key vendors are attacked? GBQ’s IT experts recently discussed cyber supply chain risk management, digital risks and more in an exclusive webinar.
For more information or to discuss this in more detail, please contact Doug Davidson, Director of Information Technology Services.
Article originally published by Columbus Business First on August 1, 2022.
