While most organizations have taken steps to beef up their internal security, they often don’t have a comprehensive vendor risk management policy. With the dramatic increase in cybersecurity incidents, your company can’t afford to overlook the importance of having a third-party risk management program. Although your cybersecurity measures may be solid, hackers can use your vendor’s systems or product to infiltrate your organization. To keep your organization safe, you need a vendor risk management policy.
What Is A Vendor Risk Management Policy?
Third-parties are an essential part of the modern economy. They enable us to save resources, help us to capitalize on their expertise, and allow us to get specialized products and services. However, working with a third party has its drawbacks. They can expose your company to financial, reputational, regulatory, operational, and strategic risk. Any company that works with vendors, suppliers, contractors, service providers, third parties, or fourth-parties needs a system to help manage these relationships.
Managing a single vendor itself isn’t easy, and working with multiple third-parties can be overwhelming. However, a vendor risk management policy makes everything easier. It’s a formal, written document that describes the risks your organization is exposed to by using a vendor product or service. The document then defines the controls that should be used to minimize vendor risks. This policy is applied to all vendors consistently, thereby reducing the threats.
Steps To Setting Up A Vendor Risk Management Policy
1. List All Your Vendors
The first step when creating your vendor risk management policy is to identify all product and service providers your business is associated with. Create a list of all vendors, contractors, and third parties you work with. Also, include the partners and third parties of your vendors.
2. Identify The Security Threats
Every vendor plays a unique role in your organization, and each role attracts a particular risk to your company. Some vendors have direct access to your network, some store your organization’s data, while others know the details of your business operations. Start by identifying how the vendors’ services may affect the delivery of your products.
Next, identify the vendors who have access to some of your most sensitive assets. This includes data, passwords, personally identifiable customer information, intellectual property, and strategic plans. Now rank the vendors based on the level of risk they may bring to your company. You can grade them into three risk levels; high, medium, and low.
3. Organize Your Third-Party Profiles
The risk category that a vendor falls in will determine the controls you will put in place. If a vendor has access to your network, you will need to use access controls. If they store your data, you may need to use encryption tools to protect the contents. If a third party has access to some assets that they don’t need, you should review the permissions. Identify the role of each vendor and group those with similar functions together. This will allow you to better manage the controls for each group.
4. Review And Define Monitoring Procedures
After you know the risks that your third parties pose, it’s time to create procedures for partnering with vendors, overseeing the partnership, and terminating contracts. You should do your due diligence and develop a vendor risk management policy that covers service level agreement, vendor controls, compliance requirements, third party audit. It should also discuss liability in case of a data breach, breach procedures, ending of the contract, and oversight to ensure requirements are always met.
5. Constantly Monitor You vendor Ecosystem
To properly manage your vendors and minimize your risk exposure, you need to keep track of your vendor controls. This will help you to identify any weaknesses that emerge and fix them on time. Constant monitoring will help you know whether a vendor is going against the agreement or is putting your organization at risk knowingly or unwittingly.
6. Mitigate Third-Party Risks
The final step is to create measures to follow when you identify a gap in your risk policy. If a vendor is posing a risk to your data, customers, or operations, you need to have an outlined procedure to handle the case. It may include contacting and informing them of the risk they are posing to your company, asking them to rectify the problem, denying them certain access privileges, and in extreme cases, terminating the contract. Whenever you notify a vendor of a security gap, make sure you follow up to ensure they have remedied the situation.
Tips For Writing the Policy
There are tips you need to follow when crafting a policy. First, make sure that the directors and top-level management are actively involved in the process. Second, the document should be brief and clear, roughly 5-6 pages, and it should be ideal for executive-level discussion. Third, it should involve the input of experts, e.g., if your vendor is offering a solution that involves handling customer data, you should consult a data security specialist. The policy should also be reassessed annually by the board and adjusted to fit organizational changes.
The Importance Of Third-Party Risk Management Policy
1. Minimizes Cybersecurity Risks
Most organizations today use a third-party software, applications, and technologies. If the vendor doesn’t implement adequate security measures, digital criminals may exploit the third party tool to attack your organization. A vendor risk management policy can help address this. This policy will help you to partner with vendors who are serious about security and compliant with various standards. It will enable you to keep third-parties on their toes when it comes to matters of cybersecurity.
2. Reduces Compliance Risks
If your vendor is not compliant with regulatory standards, they could expose you to compliance risk. Even if your company’s compliance measures are watertight, you may end up being penalized for your vendor’s mistakes. If you use a third-party tool to handle customer data, and the vendor isn’t playing by the rules, they may endanger your business. A risk policy will help you to know which vendor has access to what assets and who isn’t adhering to the customer data policy.
3. Avoiding Reputation Damage
The vendors you partner with can make or break your reputation. Some vendors don’t follow industry guidelines, while others have unethical practices. Working with such third-parties can harm your business image. Such vendors may sell the customer data you entrust them with or fail to safeguard it adequately. If customer’s get wind of such actions, your company may also get negative publicity. With a vendor policy, you will manage to select a third party who is competent and dedicated to maintaining high standards.
4. Contingency Plan
Anything can happen to your third-party. They could close down, terminate the contract, or become impossible to work with. If your company’s core operations entirely depend on one vendor, and you are no longer in a position to access their product or service, your business could fall. A risk management policy allows you to have a contingency plan that you can implement when your vendor is no longer available, thus limiting disruption to your core operations.
Modern businesses heavily depend on vendors and third parties. We need them to supply us with the services and products that we can’t produce by ourselves. With a vendor risk management policy in place, you will be in a position to reduce the threats that come with third-parties and maintain a healthy and productive relationship with your partners.