What Is Third-Party Cyber Risk Management & Why Is It Important?
Date: 17 August 2022
Businesses today face many, complicated risks - from cyberattacks to supply chain complications. Several unforeseen events can disrupt operations and cost millions to resolve.
Risk Management is a crucial part of addressing these challenges and ensuring seamless business continuity.
However, minimising internal risks is only half the solution. Since companies today rely on so many other external vendors and third parties, it is imperative to address external hazards that can affect business continuity.
In this blog we discuss third-party risk management (TPRM) from a cybersecurity perspective and what makes it so important.
What Is Third-Party Risk Management?
Third-party risk management is exactly what it sounds like: managing potential risks from third parties. These parties could be anything from manufacturers to software vendors to logistics partners. Any outside business or contractor that a company relies on, in some capacity, is a third party that could pose cybersecurity risks to the organisation if its own security infrastructure is not strong enough.
The average organisation uses 110 software-as-a-service apps, and even the simplest supply chains involve at least a few members. TPRM looks at these connections critically, asking how they could disrupt operations if something goes wrong, and works to mitigate that damage.
TPRM can cover many disciplines, cybersecurity and supply chain management being some of the most important. No matter the specifics, though, it centres around understanding the risks third parties bring and minimising their impact.
Why Is Third-Party Cyber Risk Management Important?
Third-party risk management is important because third-party cybersecurity risks are both common and extremely damaging. As per some reports, 45% organisations said they experienced at least one software supply chain attack in 2021.
Supply chain attacks are increasing by a whopping 430% as per the same report. A supply chain software attack is one where malicious code is injected into an application that is used by others, thereby infecting all the users. The impact of such attacks is huge.
One of the biggest and most damaging cyber-attacks in recent times, the SolarWinds cyber-attack, is a prime example of a supply chain attack. Malicious code was injected in the software’s build cycle thereby infecting all its customers including some of the largest business houses and most prestigious government agencies.
This supply chain attack truly opened everyone’s eyes about the importance of managing third-party risk. Interestingly, however, many organisations that did suffer a supply chain attack in 2021 did not have any attack response strategy in place.
Therefore, a critical point to note here is that Incident Response is one of the key aspects of Third Party Risk Management and it must be made top priority in the days to come. Having a solid incident response plan is one thing. It is equally essential that all key players in the IT and Incident Response teams are well-versed with this plan and what it entails. For this, conducting regular Cyber Crisis Tabletop Exercises is almost mandatory.
Because let’s face it - if 430% is the rate at which supply chain attacks are increasing, there is very little chance of avoiding them altogether. But you can be better prepared to respond to them and thereby control the damage they can cause to your business.
Third-Party Risk Management Best Practices
TPRM looks different for every company since each business has unique relationships and needs. However, some recommended steps are universal. Here are a few best practices for an effective third-party risk management program.
Research Third Parties
The first step in managing third-party risks is researching these parties before trusting them and partnering with them. Companies should review potential partners’ histories to see how they’ve handled past disruptions and what kind of security infrastructure they have in place. Client testimonials can offer some helpful information, too.
It is definitely worthwhile to do some digging and see if the potential third party has been a victim of any malicious software or a distributed denial of service attack in the past. While being attacked in the past is not really the deal-breaker, the important thing to find out is how they responded to the attack and what changes did they implement to bolster their defences after the attack.
Follow the Principle of Least Privilege
Cyber vulnerabilities are a critical part of effective TPRM, and least privilege access is an important step in minimising these risks. Of the 44% of surveyed organisations who’ve experienced a breach in the past year, 74% said it came from giving too much access to third parties.
The principle of least privilege holds that every party and device should only have access to what it needs to work correctly. Minimising what other organisations and users can get into will ensure that a breach on their end can only cause minimal internal damage.
Capitalise on Automated Tools
Another best practice in TPRM is to automate risk management processes wherever possible. Risk management involves a lot of data sharing to stay up-to-date on partner risk landscapes. Handling this data manually can take considerable time and make it difficult to get a complete picture of everything, but automation can help.
Just as automation eliminates human error in physical processes, software automation can minimise mistakes in data processing and access management. Automated systems can also consolidate all relevant information to enable easier understanding and even alert companies about emerging risks. These time savings and error reductions are crucial to responding quickly and effectively to cyber risks.
Third-Party Risk Management Ensures Cyber Maturity
While focussing on cyber maturity and resilience is commendable, it is equally important to remember that vendor risk management cannot be wished away.
In the highly interconnected world that we live in, it is nearly impossible and often unwise to not work with third-parties. However, ensuring information security and making sure you fulfil regulatory requirements is as important to business as cost-effective or time-efficient operations.
The only way to strike the ideal balance is to make Third Party Risk Management a key component of your Cyber Strategy. Paying attention to the Security Operations of your partners is of the essence as is doing due diligence before signing on third parties.
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Most importantly, however, the only thing that can ultimately save you is having a robust incident response plan for when one of your partners does get compromised. How you respond and how quickly you’re able to contain the attack from affecting your systems networks is ultimately the best Third Party Risk Management tactic you have at your disposal today.