Organizations are increasingly relying on third-parties to assist them with business operations. Many times, a partnership with a third-party vendor can cut costs and increase productivity, helping an organization gain a competitive advantage in their field. With that in mind, when working with third-parties, organizations tend to incur significant regulatory and financial risk, which is why vendors must be continually vetted while under contract.
This is typically done through the use of a third-party risk assessment which helps businesses identify the level of risk each vendor poses to their organization. Having an effective risk assessment program plays a major role in a company’s ability to minimize the effect that third-party risks have on their performance. This is why it is crucial that you continually work to optimize your evaluation parameters to better protect your organization in the future.
1. Identify your organization’s risk appetite and tolerance
In order to get the most out of your risk assessment program, you need to first identify your organization’s risk appetite. Risk appetite is a measure of the amount of risk your organization is willing to accept to meet your business objectives. Once this has been identified, you then need to determine your organization’s risk tolerance, or how much risk your organization can sustain. You can use these two metrics to build a more informed risk assessment that accurately reflects the goals of your business.
2. Set an assessment scope and classify vendors
Determining the scope of your assessment is very important as it directly impacts which third-party vendors you evaluate. To create an assessment scope, you need to determine which risk criteria pose the greatest threat to your organization’s success from both an internal and external standpoint. For example, a company that handles payment card data faces considerable compliance risk which should be reflected in their assessment scope. This will influence the tools and techniques you use to assess third-party risk.
Once you have determined your assessment scope, you can then begin to classify vendors. The goal of vendor classification is to identify which third-parties to prioritize when administering assessments. Additionally, classifying vendors will ensure that your organization does not waste time and resources assessing low-risk vendors.
3. Standardize your third-party risk management program
Many organizations tend to take a siloed approach when creating third-party risk management programs which can lead to redundancies when evaluating risk. Assigning various risk functions to different branches within your organization can create gaps in the analysis of risks and make it difficult to properly aggregate critical risks. To establish a holistic view of third-party relations, you must work to standardize risk management procedures across departments. Adopting consistent processes for third-party onboarding and audits will ensure that all employees are properly informed of any established vendor risks before conducting assessments. This will not only help to save time when evaluating vendors but will also allow you to conduct more comprehensive assessments.
4. Measure the effectiveness of your assessment
For third-party risk assessments to be effective, you need to continually monitor how accurately they are evaluating vendor risk. To measure the effectiveness of your third-party risk assessment, your organization first needs to create clearly defined success metrics. These should reflect your assessment scope as well as align with company goals.
It is important to evaluate assessments annually as this will help you determine whether or not potential risks are being identified. Additionally, you should also monitor if the appropriate action is being taken when risks are identified. Weighing assessment performance against your success metrics helps you determine if there are any areas of your risk evaluation that need to be re-worked so that you can be better prepared in the future.
5. Use technology to your advantage
It is no secret that conducting third-party risk assessments can be resource-intensive, which is why it is recommended that your organization leverages technology to help streamline the process. Technology plays a critical role in strengthening your risk assessments as it gives you a centralized platform on which you can continually monitor all of your vendors. This will increase the visibility you have into third-party risk at your organization and can be used to update your assessment scope as you begin to work with new vendors.
Technology can also help to consolidate the third-party risk information gathered during assessments to support decision-making. Additionally, you can also use technology to test the effectiveness of your assessment controls, ensuring that your risk evaluations are reliable.
How SecurityScorecard can optimize risk management
It can be difficult to gain full visibility into third-party risk as, even with controls in place, organizations cannot always validate vendor responses. With that in mind, SecurityScorecard Atlas helps organizations address this issue by providing them with tools they need to gain a 360-degree view of their vendor’s cybersecurity risk. Atlas accelerates the vendor risk questionnaire process by enabling senders and receivers to easily manage, complete, and review questionnaires in one centralized platform. Additionally, Atlas’ Smart Mapping Engine will automatically assign SecurityScorecard Ratings to vendor responses giving you the ability to validate the accuracy of your assessments.