The IT Professional’s Handbook to Third-Party Vendor Risk Management Excellence  

Partnering with vendors can save a company time, money, and headaches, but unfortunately, vendors can also open the door to security nightmares. Developing a risk management strategy may be a granular process, but it’s the only way to protect an organization’s reputation and financial stability.

What Is Third-Party Vendor Management?

Third-party vendor management refers to the checks and balances established between an organization and its vendors. It clearly identifies the key players, defines their roles, and outlines general responsibilities for each party. In addition, it delves into the monitoring and compliance mechanisms that safeguard an organization against threats.

Key Elements of Effective Third-Party Risk Management

Third-party risk management essentially adapts the current regulatory standards to your organization’s individual processes. As you piece yours together, consider the following categories.

Governance Documents

Governance documents establish formal rules and day-to-day procedures, and they should be written for internal reference and outsiders (e.g., auditors, stakeholders, etc.) alike. So, if a natural disaster occurs and your physical machinery is wiped out, a governance document would detail the full data recovery plan, including who’s in charge of relaunching operations.

Senior Management and Board Involvement

Oversight for critical and high-risk vendors should be done at the highest level. Your risk management reports must be regularly reviewed to assess the viability of the program, and you’ll need a clear hierarchy of decision-makers. For example, an IT professional may make a recommendation to cut ties with a vendor, but only the CEO can officially sever the relationship.

Risk-Based Due Diligence

Due diligence comes down to research. To assess inherent risks, you should triage your vendors based on their access levels. For example, if you hire a vendor to optimize your networks, like a Managed Service Provider (MSP), your due diligence will be far more involved than, say, a SaaS provider for non-critical services.

Contract Management

Contracts define the working relationship between parties and often serve as the key piece of evidence in a dispute. After negotiating and executing the contract, the service level agreements (SLAs) should be clear to both parties and regularly reviewed (and, if necessary, amended) throughout the working relationship.

Offboarding

Vendor termination should be explicitly spelled out under third-party management. Without the right oversight or systematic review, you risk anything from process disruptions to data breaches. Tasks like data handling and notifications should be delegated to authorized parties who understand the nature of the contract.

How to Implement a Comprehensive Vendor Management Strategy

An organization’s implementation framework should be adapted based on the staff and scale of operations. However, all successful implementations should include the following:

• Specifics: The more detailed you are, the fewer questions and miscommunications. Paperwork, contracts, and reporting should be as detailed as possible to prevent misinterpretations of the vendor agreement.
• Background checks: All vendors, regardless of risk profiles, should be vetted for compliance and quality.
• Metrics: Your rating systems should establish a benchmark for quality, so it’s easy to see whether the vendor lives up to expectations. For example, the vendor must have strong client satisfaction ratings to back up their promises.

Regular reporting, structured offboarding, and rating systems can all help you implement vendor management, particularly for the most high-risk vendors.

How to Categorize Third-Party Vendors

Categorizing third-party vendors can be broken down into the following basic steps:

1. Identify and list all vendors with access to sensitive or customer information.
2. Detail the vendor’s services, contact information, and any other pertinent data needed for risk assessments (e.g., security protocols, etc.).
3. Label vendors as critical-, significant-, or non-essential based on confidentiality of information, access to information, volume of assets, and general data availability. For instance, if there are several barriers in place before a vendor can access sensitive data of any kind, you might label them as non-essential.
4. Administer security questionnaires or conduct direct assessments of each vendor (e.g., business continuity, overall governance, etc.) Develop a risk matrix to analyze the information and identify both inherent and residential risks.
5. Develop an attack surface monitoring solution and assign ratings of the vendor’s security posture.
6. Audit vendors via site visits, penetration testing, and comparative risk scores to verify their security standards. Schedule regular reassessments of vendor risk and adjust ratings as necessary.

To ensure proper categorization, consult with finance, legal, marketing, and procurement leaders to align risk management processes and ensure consistency. We recommend collaborating with all relevant departments to establish risk thresholds to pre-screen, onboard, and monitor vendors.

As you work with legal and compliance, ensure that you’re aware of the regulatory measures that apply to your industry (e.g., healthcare, finance, etc.). In addition, consider how protocols might change in the near future based on the ongoing compliance trends.

You can adjust security assessments and compliance controls based on the vendor’s individual risks, and you should have the express approval of legal and compliance departments before finalizing your governance documents.

How to Leverage Technology for Efficient Risk Management

Leveraging technology can reduce the amount of legwork on your end and streamline vendor risk management. Adopting comprehensive approaches to manage your digital ecosystem can be highly effective. Additionally, utilizing specialized methods to gain a deep understanding of both vendor capabilities and risks can provide valuable insights, making in-depth control assessments an excellent choice for your most important vendors.

These systems can immediately expose cyber risks during onboarding, thereby accelerating decision-making and optimizing resource allocation. By assessing the vendor’s operational continuity, data privacy, financial stability, and compliance obligations, you can be more confident with every recommendation and SLA.

After onboarding the vendor, you can use tools to continuously monitor an individual vendor’s security posture. These tools will also alert you to any threshold breaches, which is why it’s so important to clearly define what your thresholds are. The more stringent, the more likely you’ll waste time with false alarms. If they’re too lax, a threat is more liable to go undetected.

AI-driven analytics platforms and AI tools, can analyze troves of data and detect anomalies, so you can quickly complete questionnaires, assessments, and compliance checks. These tools automatically generate responses for basic compliance and security questions, so you can focus your time on more complex matters.

Risk management platforms can also help an organization monitor and manage risks. Comprehensive and user-friendly dashboards reveal real-time data analysis and risk scoring, so you can identify threats more efficiently. Predictive analytics forecast potential risks based on historical data and provide geographic visualizations, so there are fewer gaps between when a threat emerges and when it’s mitigated. Choose compliance management software that automates updates based on regulatory requirements, so the organization enjoys both constant compliance and a simplified audit process.

With the right technology, IT professionals have the insights they need to have data-driven conversations and collaborative risk remediation. With the right monitoring tools, you can establish risk domains that break down each category, so you’re less likely to miss a critical detail.

Documentation Practices

Detailed records accelerate both internal and external audits. We recommend third-party risk management software to ensure data is logged and easily retrievable, so it’s possible to verify monitoring practices, compliance checks, threat alerts, etc. Whether you have quarterly or annual evaluations for a vendor, the paperwork and reporting is as clear to internal players as external auditors or stakeholders.

As regulations change, you may need to update your monitoring processes and documentation practices to comply with the latest standards. Ensure that you’re proactively communicating with vendors, updating them of any recent changes or emerging threats. For instance, if a new virus sweeps onto the scene, there should be ongoing, documented conversations about whether your organization is at risk and what can be done to prevent an attack if so.

Your incident response and predictive planning should detail the procedures for all immediate threats, including interference and escalation. As you list the protocols and procedures, consider how to implement mitigations in a way that disrupts operations as little as possible.

How Dataprise Can Help

A robust third-party risk management strategy is invaluable to organizations that can’t afford operational shutdowns, compliance fines, and reputation loss. With better strategies and monitoring tools, you can lean on third-party vendor relationships while still safeguarding against vulnerabilities. If you’re unclear which tools are right for your organization, how to integrate them into your current systems, or even how to justify the expense to a budget-conscious CFO, the right MSP can work under even the strictest compliance controls. If you’re interested, contact us to see how we can help!