Regardless of the industry you operate in, business relationships, particularly with third-party vendors make up some of the largest risks to your information environment. Currently, companies are taking up additional software-as-a-service (SaaS) vendors for streamlining business processes. Nonetheless, as you include new services, vendor due diligence proves to be more sophisticated.
Due Diligence Best Practices for Third Parties
Where Do I Start Third-Party Due Diligence?
The initial step to every vendor due diligence program mainly rests in cataloging all your business partners. In this case, beginning with partners who are most important to your business process is advisable as you have software providers, servers and networks. However, the complications emerge when you begin drilling down since different enterprise areas call for different vendors.
Your human resource department could be connecting to healthcare insurance providers, particularly those utilizing a web-based app. In meantime, your marketing department may be utilizing social media tools for developing your brand. Although defining some of your business partners may be easy, the risks posed to your data landscape stem from being linked, mainly within an overarching environment.
How to Analyze Third-Party Risk?
Even though identifying vendors could be a difficult undertaking, identifying your third-party risk is easy. In fact, for every third-party relationship, you must analyze the following aspects:
- How vital is the vendor to the continuity of your business?
- To what extent is the vendor critical to your business operations?
- How does the vendor support your overall strategic and objective plans?
- What information is accessed by the vendor?
- What access level to my devices, software, servers, and networks do I require to give the vendor?
- What devices, software, servers, and networks do the vendor access?
In case a vendor requires a high access level to private information, they ought to be branded as a high-risk relationship. However, when a vendor does not pose any high risk to your organization, you may be required to consider multiple risks connected with the relationship.
How do you develop associated risk tiers?
Although several vendors may not be vital to your business operations, they have access to private information. For instance, social media marketing engines can access your networks even though they would not be vital to the operations of your business. In the meantime, a payment processing vendor will prove to be useful not only to your business operations but also when it comes to accessing your customer information. Ultimately, when managing an employee web portal, it accesses your organization ’s networks.
All these related risks pose a certain impact on your organization’s cybersecurity even though it is not equal. While considering the amount of information criticality, and access, you need to come up with risk-based segmentation of your vendors in a bid to assist in monitoring the risks with the most impact.
5 Vendor Management Best Practices for Due Diligence
- Defining Strategies
Once you have identified your risks, you must embark on creating strategies that alleviate them. Even though you may decide to refuse, transfer and accept certain risks, you may end up eliminating all them. Some of the strategies for mitigating risk entail obtaining audit reports, site visits, continuous monitoring tools, and self-assessments.
- Reviewing Employee Conduct
Every vendor employee poses a data risk. As such, a section of the due diligence process calls for you to evaluate the risks that employees from the entry to management level pose to your business.
- Creating Legal Guidelines
Bear in mind that business relationships are not friendships since they need legal supervision, for instance, through contractual obligations. A robust vendor management helps in maintaining agreements that both cybersecurity and product delivery requirements.
- Defining Cybersecurity Controls
All your vendors ought to be involved in aligning your cybersecurity stance. What ’s more, you must define all your requirements to protect yourself from any liability stemming from their data breach. These prerequisites comprise various things including monitoring their ecosystem, data encryption, and firewall protections.
- Trust but Always Verify
It is normal to trust the audit reports supplied by your vendors. The problem with such reports is that they only focus on a point-in-time. Since cybersecurity evolves regularly, your audit reports may be obsolete with hackers exploiting a single previously unidentified weakness dubbed zero-day vulnerabilities.
Why do you Require a Security-First Due Diligence Process?
Beginning with security allows you to protect both your reputation and information better. Also, you can ensure your data protection comes first through locking down your overall supply-chain and environment. Although the old adage says that if you build it they will come, cybersecurity works differently in that you need it. In vendor management, due diligence requires you to not only maintain security-first approach but also to view cybersecurity from a serious perspective accounting for changes that come frequently in cyberspace.
You may also like: How Vendor Risk Management Can Impact Your GDPR Compliance
About the Author
Ken Lynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that. He has propelled Reciprocity’s success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT. Learn more at ReciprocityLabs.com.