Businesses have been collaborating with external partners for many years. By working with third parties, companies can access specialized skills and expertise without the expense of hiring full-time employees. However, as businesses engage with more third parties, they also face increased risks.
A 2023 RSA Conference report highlighted that 87% of CISOs surveyed experienced a major cyber incident caused by a third party in the past year.
While the benefits of these partnerships are clear, it’s essential to address the potential risks they bring. Third-party risk assessments can help you manage these risks.
But how can you conduct a successful third-party risk assessment? What are the essential steps and best practices?
Let’s explore in this article below.
Steps to conduct a successful third-party risk assessment
A thorough third-party risk assessment helps secure your organization from potential threats. It enables you to identify and manage risks effectively, ensuring your partnerships remain beneficial while minimizing vulnerabilities.
Below is a step-by-step guide to help you in this process:
1. Identify and classify third-parties
The first step is identifying all third-party vendors, suppliers, and partners your organization works with. Once identified, classify them based on their importance to your business and the risk level they pose. Consider factors such as the confidentiality of data they handle, the criticality of their services, and their access to your internal systems. This classification will help you prioritize your risk assessment efforts.
2. Select or develop a risk assessment framework
A risk assessment framework helps evaluate third-party risks consistently. You can either adopt an existing framework or develop one based on your organization’s specific needs. The framework should include criteria for assessing various risk factors, such as financial stability, regulatory compliance, cyber security measures, and operational reliability.
3. Collect relevant data on third-party practices, policies, and controls
Gather detailed information on your third parties’ practices, policies, and controls. This may involve reviewing their security protocols, compliance certifications, incident response plans, and past performance. You can also conduct questionnaires, interviews, and on-site visits to gain deeper insights into their risk management capabilities.
4. Prioritize third-party risks for remediation
Once you’ve collected and analyzed the data, prioritize the identified risks. Assign a risk score based on the likelihood of occurrence and potential impact on your organization. Focus your remediation efforts on the highest risks first, ensuring critical vulnerabilities are addressed promptly. You can use a risk register for this purpose.
5. Develop and implement strategies to mitigate identified risks
With the risks prioritized, develop strategies to mitigate them. This could include updating contracts to include specific security requirements, providing training to third parties, or implementing stricter access controls. Ensure these strategies are communicated clearly, and third parties understand their role in maintaining security.
6. Report findings to stakeholders
Prepare a detailed report of your findings, including the identified risks, their potential impact, and the mitigation strategies you’ve implemented. Share this report with relevant stakeholders, such as senior management, the board of directors, and any other parties responsible for oversight. Regular updates on the status of risk management efforts will help maintain accountability and ensure continuous improvement.
Best practices for a successful third-party risk assessment
A successful third-party risk assessment requires following best practices that ensure comprehensive risk management.
Below are some best practices that can help you enhance your third-party risk assessment process:
1. Integrate risk assessment into procurement and onboarding
One of the most critical steps in managing third-party risks is to incorporate risk assessment right from the beginning—during the procurement and onboarding phases. By evaluating potential third-party risks at the start, you can identify and mitigate issues before they affect your organization.
Key steps during procurement and onboarding
- Define criteria: Establish clear criteria for evaluating third-party risks, focusing on areas like data security, financial stability, and regulatory compliance.
- Risk screening: Conduct a comprehensive screening of third parties, including background checks, financial audits, and security assessments.
- Contractual safeguards: Ensure that contracts include clauses that address identified risks, such as data protection requirements and audit rights.
- Initial risk assessment: Perform an initial risk assessment to understand the third party’s risk profile and establish a baseline for ongoing monitoring.
2. Use technology and automation
Technology can significantly enhance the efficiency and accuracy of your third-party risk assessments. Automated tools help streamline processes, reduce human error, and provide real-time insights into third-party risks.
Overview of tools
- Risk assessment platforms: Solutions like CyberGRX, BitSight, and ProcessUnity provide comprehensive risk scoring and monitoring capabilities.
- Automation tools: Implementing tools like CyberArrow that automate evidence collection and reporting can reduce the time and effort involved in third-party risk management (TPRM).
- Continuous monitoring software: Use platforms that offer ongoing surveillance of third-party activities, alerting you to any significant changes or emerging risks.
3. Continuous monitoring and reassessment
Risk assessment is not a one-time activity but an ongoing process. Continuous monitoring and regular reassessment are vital to ensuring that third-party risks remain manageable over time. As third-party environments and business landscapes evolve, so do the associated risks. Regularly reassessing these risks helps you avoid potential issues and adjust your strategies accordingly.
Strategies for continuous monitoring
- Scheduled reassessments: Establish a schedule for periodic reassessments of third-party risks, considering changes in their operations, financial health, and regulatory landscape.
- Real-time monitoring: Implement real-time monitoring tools that track third-party activities and flag any deviations from expected behavior.
- Feedback loops: Create feedback mechanisms where third-party performance and compliance issues are reviewed and discussed regularly with internal stakeholders.
4. Collaboration with internal teams
Effective third-party risk management requires collaboration across various departments, including IT, Legal, Compliance, and Procurement. Cross-functional collaboration ensures that all potential risks are identified, assessed, and mitigated.
Steps to ensuring cross-functional collaboration
- Regular meetings: Schedule regular meetings with representatives from key departments to discuss third-party risks and updates.
- Shared tools and platforms: Use shared tools and platforms that allow different teams to collaborate and access the same information.
- Defined roles and responsibilities: Clearly define each department’s roles and responsibilities in the risk assessment process to ensure accountability and efficiency.
5. Documentation and audit trails
Maintaining detailed documentation of your third-party risk assessment activities is essential for audit readiness and regulatory compliance. Accurate records also provide a clear audit trail that can be invaluable in the event of an incident.
How to ensure audit readiness and compliance
- Centralized documentation: Store all documentation in a centralized location that is easily accessible to relevant stakeholders.
- Regular audits: Conduct internal audits to ensure that all documentation is up to date and compliant with industry standards.
- Compliance reporting: Generate regular reports that demonstrate compliance with relevant regulations and industry best practices.
Automate your third-party risk assessments with CyberArrow
Manual third-party risk assessments can be a time-consuming and resource-intensive process. Ensuring that your vendors adhere to security standards requires constant vigilance and an in-depth understanding of potential risks. This is where automation can make a significant difference.
Tools like CyberArrow offer a solution to enhance your third-party risk management (TPRM) efforts. By leveraging cutting-edge algorithms and an extensive library of over 3000 risks and corresponding mitigations, CyberArrow simplifies the risk assessment process.
With CyberArrow, you can automate the entire assessment process—from sending out pre-defined audit questionnaires to automatically generating security maturity scores for each vendor. Additionally, CyberArrow facilitates policy enforcement, enabling you to send policies for vendor acknowledgment.
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