Vendor Risk Assessment: Best Practices
Third-party vendors should deliver value, not pose hidden risks. Uncover threats before they turn into costly penalties with these best practices.
23% of organizations experienced security incidents from a third party — up from 9% in 2020, based on the State of TPRM report. Working with various suppliers and service providers is often essential for growth, but it can also introduce risks to your business. This is a critical concern as many third parties have access to an organization's network, systems, and data, creating potential vulnerabilities that could be exploited by cybercriminals.
Notably, around 98% of organizations are connected to a third party that has experienced a breach, with 29% of those breaches attributed to third-party attack vectors.
To decrease the risks associated with outsourcing, thorough vendor assessment determines whether vendors are able to meet the organization’s expected standards and requirements for security and GRC.
Before moving on, let us first differentiate between a vendor and a sub-processor.
Vendor: A vendor is an organization or person that supplies items or services to another company. They can provide a diverse array of goods and services from basic raw materials to professional services.
Subprocessor: A subprocessor, as used in the context, refers to any third party that processes data on behalf of a data processor (the primary contractor) that is processing data for a data controller. This term is most significant in relation to data protection laws such as General Data Protection Regulation (GDPR) in the European Union (EU).
Significance of vendor assessments
The Third Party Risk Management market is forecasted to be $6.8 billion by 2024 and $19.7 billion by 2032. This exponential growth underscores the critical importance of robust vendor assessments in today's business environment.
Comprehensive vendor assessments, facilitated by advanced risk management software platforms, help mitigate these risks by evaluating the reliability, security, and compliance of third-party vendors. This not only safeguards the organization against potential disruptions and data breaches but also ensures adherence to regulatory requirements and industry standards.
In March 2023, AT&T suffered a breach through one of its marketing vendors that compromised the Customer Proprietary Network Information (CPNI) of approximately 9 million wireless accounts. Compromised data included names, email addresses, phone numbers, the number of lines on an account, and wireless rate plans.
These incidents show that effective vendor assessments, supported by risk management solutions and risk control software, are essential for maintaining operational integrity, protecting sensitive information, and fostering long-term, trustworthy partnerships.
Challenges in vendor assessment
Incorporating third-party and vendor risk assessment into security strategy can bring forth a lot of challenges. The most common way to assess vendors is to send out security questionnaires and prepare an analysis report. From managing vendor inventories to reaching out to them and waiting for their replies, here are some of the common challenges that businesses across industries face when assessing vendors.
Limited Bandwidth
One of the primary challenges in vendor assessment is the limited bandwidth of the risk management team. Large enterprises have an average of 173 third-party partners, while smaller organizations have an average of 16. Often, organizations do not have enough risk assessors to thoroughly evaluate every vendor, leading to potential oversights. This can result in inadequate risk identification and mitigation, ultimately exposing the organization to unforeseen threats.
Following up with vendors
The process of following up with vendors can be incredibly time-consuming and frustrating. Vendors may be unresponsive, causing delays in the assessment process. This back-and-forth communication can become an endless loop, consuming valuable time and resources. Moreover, maintaining consistent communication and obtaining necessary information from vendors can be challenging, further complicating the assessment process. As enterprises have a high number of vendors, it usually takes a lot of time to reach out to them and initiate the assessment process. Even after initiating the process, chances are that they will have to wait for some time till a response is received. The longest that we've waited for a vendor's response at SecurityPal is a little over a year and is still ongoing.
Manual processes
Many organizations still rely heavily on manual processes for vendor assessment, which can be inefficient and error-prone. Manual follow-ups, risk analysis, report preparation, and risk registration can lead to inconsistencies and delays. The lack of automation in these processes means that assessors spend a significant amount of time on administrative tasks rather than focusing on strategic risk management activities. Imagine you have to manage over 200 vendors in a database, monitor them, and manage them manually. It gets a little tedious and annoying after a while, right?
Best practices in vendor assessment
When optimizing your assessment process, understanding where to start can be challenging. By performing due diligence, carefully selecting vendors, and implementing continuous monitoring, you can significantly reduce your organization's exposure to business and safety hazards.
Our globally certified security analysts have answered nearly 2 million security questions, giving them key insights into vendor relationships and security priorities. Based on these insights, here are a few best practices for effectively managing third-party risks and securing your business from potential vulnerabilities.
Adopt industry frameworks
- NIST: Utilizing established frameworks such as the National Institute of Standards and Technology (NIST) can provide a structured approach to vendor assessment. These frameworks offer guidelines and best practices for managing risks associated with third-party vendors, ensuring a comprehensive evaluation process. They help organizations identify, assess, and mitigate risks systematically.
Source: NIST Special Publication 800-30 Revision 1
- ISO/IEC 27001: This international standard provides a structured way to manage sensitive company information to keep it secure. Involving people, processes, and IT systems, it implements comprehensive risk management.
- COBIT (Control Objectives for Information and Related Technologies): COBIT is an integrated framework developed by ISACA for IT management and governance. It supports enterprises in meeting their goals and objectives related to IT governance and management, aligning with the organization's overall objectives.
- SOC 2 (System and Organization Controls): Developed by the American Institute of CPAs (AICPA), SOC 2 defines criteria for managing customer data based on five "trust service principles" — security, availability, processing integrity, confidentiality, and privacy. SOC 2 reports are organization-specific, tailored to their specific business practices and controls.
- HIPAA (Health Insurance Portability and Accountability Act): This framework provides guidelines for protecting sensitive patient information for organizations in the healthcare sector. Vendor assessments under HIPAA ensure third-party conformance to the security, privacy, and breach notification rules.
- PCI DSS (Payment Card Industry Data Security Standard): PCI DSS is a security standard for protecting cardholder information used, stored, processed, and transmitted by all parties involved. It enforces a set of controls and measures to ensure data protection.
- GDPR (General Data Protection Regulation): This EU regulation addresses data protection and privacy. Vendor assessments under GDPR ensure third parties comply with data protection principles and regulations.
- CIS Controls: CIS Controls are a prioritized set of actions to protect your organization and data from known cyber-attack vectors. The Controls provide specific and actionable ways to prevent today's most pervasive and dangerous attacks.
- FedRAMP (Federal Risk and Authorization Management Program): FedRAMP is a government-wide program providing a standardized approach to security assessment, authorization, and continuous monitoring of cloud products and services. It ensures the security of cloud services used by federal agencies.
- CMMC (Cybersecurity Maturity Model Certification): This framework measures cybersecurity maturity across the Defense Industrial Base (DIB) sector, combining various standards and best practices. It is mandated by the DoD for companies that do business with them.
Monitor different types of risks
It's crucial to monitor both residual and inherent risks associated with vendors. Residual risk refers to the risk that remains after all mitigation measures have been implemented, while inherent risk is the level of risk before any controls are applied. Understanding and managing these different types of risks can provide a clearer picture of the vendor's risk profile and help in making informed decisions.
Define risk tolerance, appetite, and culture
Organizations need to establish their risk tolerance, appetite, and culture as part of their vendor assessment strategy.
- Risk tolerance refers to the level of risk your organization is willing to accept as it pursues its objectives. This is the threshold at which potential risks are deemed acceptable or unacceptable. For instance, in a highly regulated industry, risk tolerance may be low, requiring stringent vendor controls to avoid compliance issues.
- Risk appetite goes beyond tolerance, encompassing the amount and type of risk your organization is prepared to pursue or retain to achieve its strategic objectives. This is a broader concept that considers both the potential benefits and the downside of taking certain risks.
- Risk culture is the collective mindset and attitude towards risk within your organization. It reflects the values, beliefs, and practices that shape how risk is perceived, communicated, and managed across all levels. A strong risk culture ensures that risk management is not just a procedural formality but an integral part of the organization's daily operations.
These elements guide the decision-making process and ensure that risk management practices align with the organization's overall objectives and values.
Leverage technology
To address the challenges of limited bandwidth and manual processes, organizations should leverage advanced risk management software and risk management platforms. These tools can automate various aspects of the vendor assessment process, from initial risk analysis to ongoing monitoring and reporting. Automation reduces the burden on risk assessors, minimizes errors, and ensures a more efficient and consistent assessment process.
Conduct regular trainings and updates
Continuous training for the risk management team is essential to keep up with the latest trends, tools, and best practices in vendor assessment. Regular updates and training sessions ensure that assessors are equipped with the necessary skills and knowledge to effectively evaluate vendors and manage risks.
Establish clear communication channels
Effective communication with vendors is key to a successful assessment process. Establish clear and consistent communication channels to ensure that vendors understand the requirements and expectations. This can help reduce delays and improve the overall efficiency of the assessment process.
Conduct periodic reviews
Vendor assessments should not be a one-time activity. Conduct periodic reviews to reassess the vendor's risk profile and ensure ongoing compliance with the organization's standards. This helps in identifying any new risks that may have emerged and taking appropriate mitigation measures.By addressing these challenges and implementing best practices, organizations can enhance their vendor assessment process, mitigate risks more effectively, and build stronger, more reliable partnerships with their vendors. Leveraging risk management solutions can significantly streamline this process, ensuring comprehensive risk assessments and robust vendor management.
Simplify your vendor assessment
SecurityPal offers an end-to-end solution to manage and streamline your vendor assessment process with Vendor Assess (TPRM). With 150+ globally certified security analysts and 24/7 operations, SecurityPal can help enhance your security posture by continuously monitoring vendors and associated risks.
Book a call with us to learn more about Vendor Assess and how it can help you mitigate third-party risks effectively.
