Vendor Risk Management: What is it?

In today's business world, companies rely on third-party vendors for many different services. Such vendors may provide cloud-based software, infrastructure, and operational support daily. Third party vendors enable your company to save on costs, increase efficiency, and achieve growth.

However, sharing business data with vendors also comes with its risks. According to The Ponemon 2018 Cost of a Data Breach Study, a data breach that occurs through a third-party source ends up costing over $13 for each compromised record. This means that data breaches arising from your vendor network are costlier and come with more extensive consequences.

By implementing a vendor risk management program, you can keep your data protected and avoid costly disruptions to your operations.

What is Vendor Risk Management?

Vendor Risk Management – VRM, is the process of applying policies and procedures that govern third party access to your business data. Because vendors often need to access critical business information when providing their services, the systems they use can become a weak point for data breaches. Therefore, VRM ensures that such vulnerable points are secured from any possible risk factors.

Many regulators across various industries now require a Vendor Risk Management Plan. Regulatory bodies also specify policies, programs, and due diligence when it comes to vendor management. There have been new guidelines put in place over the years with regards to how third-party vendors are managed. For example, The Payment Card Industry Data Security Standard (PCI DSS) put forward new guidelines that relate to the cloud in 2018. These guidelines cover how businesses should manage vulnerability and technical security when moving to the cloud.

The EU's GDPR guidelines also cover vendor management. Companies that outsource data processors when managing data are required to assess all technical controls during the process. And as far as security is concerned, the New York Department of Financial Services requires businesses to maintain a third-party provider for their security policy.

Understanding third party Vendors

Third party vendors are primarily service providers who work together with businesses to help manage daily operations. These vendors come in many different capacities, ranging from SaaS providers to IaaS services. It's important to understand who your vendors are, how their systems work, and the risks that are likely to occur against your business data during service provision.

In most cases, vendors are IT suppliers who help your business improve performance via cloud-related services. Some of these vendors include:

1. SaaS

Software-as-a-Service refers to the provision of essential programs that power your daily operations. Rather than purchasing and maintaining these programs in-house, SaaS allows you to access the platforms you need via the cloud.

Most back-end work is done by the service provider, giving your employees and customers an easier time using the software available.

2. IaaS

Infrastructure-as-a-Service provides you with the equipment you need to run your business operations. By not having to deal with infrastructure purchases, you can save on costs while enjoying higher margins. For example, an IaaS provider can provide data storage, data center infrastructure, and other equipment to make your operations more efficient.

3. PaaS

Depending on the operations of your business, you may need a platform that can host your new mobile applications, websites, or other similar projects. Platform-as-a-Service Providers offer such platforms as a Launchpad (or extra capacity) for your business.

The risks vendors pose to your systems

With each vendor you rely on to provide essential services, there comes a data security risk. Such risks can be mild, and others can be as significant as to disrupt your operations. Here are some common vendor risks you should be aware of:

•  Web security risks

SaaS providers can expose you to web security risks such as SQL attacks and cross-site scripting.

•  DDoS attacks

IaaS providers can fall prey to Distributed Denial of Service attacks. Such attacks lead to service disruptions, which can, in turn, leave your sensitive data vulnerable.

10 Steps to a Vendor Risk Assessment Plan

An essential part of vendor risk management is to assess the risks that your company faces, after which you can act accordingly to mitigate such risks. Vendor risk assessment occurs in 10 distinct steps as follows:

1. Listing of the vendors you work with

This step sounds easier than it is. Your business may be using an extensive network of vendors for many different services. Take time to focus on the essential third-party vendors and services that keep your business moving.

2. Assessment of the risks each vendor presents

The next step is to assess the risks you face and identify the ones most critical to your operations.

3. A review of the information each vendor has access to

Depending on the vendors you work with, each will have access to different types of information. You may wish to pay more attention to those who handle or can access Personal Identifiable Information and other sensitive data.

4. Identifying specific threats your business is exposed to

List the dangers that each vendor exposes your business to. Some vendors may pose similar risks, while others may pose more extensive levels of risk.

5. Quantifying and rating each type of risk

The next step is to assign each risk as a low, medium, or high risk. Ratings make it easier for you to categorize risk factors and to develop a plan of action.

6. Carrying out risk analysis

Risk analysis involves multiplying the likelihood of a risk happening by the level of the threat itself. The analysis allows you to quantify the risk in dollar amounts or extent of disruption.

7. Developing a plan for risk response

Once all risks are analyzed, you can determine a method for handling risks that may occur. For example, you may choose to accept, refuse, transfer, or mitigate.

8. Putting relevant controls in place

Controls govern how data will be accessed, shared, and secured within your business.

9. Establishing a Service Level Agreement (SLA)

An SLA specifies the controls that you put in place for vendors. SLAs ensure that third party service providers also align their risk strategy to fall in line with yours.

10. Continuous monitoring

Finally, you need a framework for continuously monitoring the vendor environment. This will ensure