When you work with third parties, their risk is your risk. Common risks associated with vendors include everything from compliance risk to operational risk to financial and reputational loss.
According to Ponemon’s 2018 Cost of a Data Breach report, third-party breaches cost more than in-house breaches, at $13 per compromised record.
However, data breaches arising from vendor errors are common; 59% of respondents to Ponemon’s 2018 Data Risk in the Third-Party Ecosystem report reported a third-party-related data breach. Despite this fact, many organizations aren’t prepared for supply chain breaches – according to Protoviti’s 2019 Vendor Risk Management Benchmark Study, only 4 in 10 organizations have a fully mature vendor risk management process in place, while a third have either no risk management program or an ad hoc process.
What should your vendor risk assessment include?
You can’t completely eliminate all vendor risk, but you can manage it by assessing all the cybersecurity risks that come with each vendor as part of your due diligence process.
A vendor risk assessment is a tool that helps you understand how much risk you’ll take on when working with a specific vendor. Vendor risk assessments generally include the following steps.
Make a list of your vendors
Listing your organization’s vendors can be an intimidating process because organizations often don’t know who all their vendors are.
While it’s certainly important to list large vendors who handle core business functions — cloud service providers (CSPs), for example — smaller vendors also need to be catalogued. This can be complicated because departments often work with their own pool of vendors and may not have shared that information with other departments.
Daunting as the risk assessment process is, it’s important to get a picture of all the vendors your organization works with. Risk can come from any vendor, no matter their size and function.
Start classifying
Your vendor list is the first step toward classifying your vendors from highest risk to lowest risk based on the systems, networks, and data they access. . For example, an Infrastructure-as-a-Service (IaaS) or Platform-as-a-Service (PaaS) provider often stores customer data, proprietary information, and business critical software such as operating systems and databases. Meanwhile a point-of-sale (POS) systems vendor will have access to customer cardholder data (CD), and a payroll vendor will be able to access employee non-public personally identifiable information (PII).
Here are some questions to ask yourself as you classify your third parties:
- What does each vendor do?
- Who owns the vendor relationship?
- Which vendors are tied to your organization’s most critical business operations?
- Which vendors have access to protected information?
- Do those vendors need access to that information?


Calculate your risk
Not all vendors pose the same risks to your data. Vendors that handle critical business processes will be a bigger threat to your data than smaller contractors who may work with a single department.
You want to do a cybersecurity risk analysis for each vendor following the same formula you use for your organization. Using the identification and classification steps, you then use the following formula:
Risk = Likelihood of a Data Breach X Impact of a Data Breach/Cost
A cloud-based Electronic Medical Record (EMR) vendor, for example, may be responsible for handling a healthcare organization’s patient information records. A cyberattack on their servers would have a big impact, but it may also be extremely unlikely since healthcare is a highly regulated industry requiring strict, prescriptive controls under the Health Insurance Portability and Accountability Act (HIPAA). Meanwhile, a Software-as-a-Service (SaaS) vendor may use Amazon Web Services (AWS) and misconfigure the AWS S3 buckets leaving data stored there open to the public making a data breach more likely.
This is the tricky part of the vendor risk assessment process. You often lack the information necessary to determine the vendor’s likelihood of experiencing a data breach. For example, since you can’t control the vendor and review the vendor’s AWS configurations, you may not know that the vendor’s misconfiguration exists. In fact, often, the vendor won’t know.
In some cases, a vendor may have experienced a breach in the past, but unless the vendor is regulated and must report the breach, you don’t know this occurred. Even further, a vendor may have experienced a data incident that doesn’t rise to the level of a data breach, and therefore won’t need to be reported. In short, you often lack the information necessary to analyze the risk appropriately.
Assign a security risk rating
Once you analyze the risk a vendor poses, you set a risk rating of high, medium, or low. The vendors who handle the most business critical operations or the most sensitive data will likely be rated medium or high.
Vendors who do not interact with critical systems, networks, and data will be rated “low risk.”
Setting the risk rating allows you to prioritize your vendor risk monitoring strategies.
Using your assessments of your vendors and their associated threats, assign risk ratings to each vendor: low, medium or high.
Respond to your security risks
Once you understand the risks associated with each of your vendors, you can decide how to respond to them, by accepting, refusing, mitigating, or transferring the risk. If you choose to accept or mitigate risks associated with a vendor, you’ll then have to take action.
- Set controls for vendors: Encryptions, firewalls, and multi factor authorization are all examples of controls you and your vendors can put in place to protect your assets. An unchanged default password is a terrible way to suffer a breach, and easily preventable.
- Define your terms: If you’ve set controls, you need to make sure you and your vendors are using the same controls. Write your controls and your requirements into your agreements with vendors, so they know what’s expected of you.
- Monitor your vendors: Your work isn’t done when you set controls and get vendor buy-in. It’s your job to monitor your vendors continuously to ensure they don’t become lax and put your data at risk.
How SecurityScorecard helps you provide continuous vendor monitoring
Vendors controls aren’t a crockpot. You can’t just set them and forget them. Nor is it enough to monitor vendors using static monitoring techniques, like questionnaires. Continuous monitoring is the best way to manage your third party relationships and ensure your data is consistently protected.
SecurityScorecard’s Atlas is an intelligent tool that helps you streamline your vendor risk assessment process and mature your vendor risk management program. Using our platform, organizations can upload vendor responses to questionnaires. Atlas’s machine learning compares those answers to previous questionnaires and the platform’s analytics, verifying vendor responses almost immediately.
Atlas also assigns security ratings for you. Our security ratings use an A-F scale across ten factors. As part of your vendor risk mitigation strategy, you can use these thirteen factors to set service level agreement (SLA) compliance requirements. Moreover, the easy-to-understand ratings scale enables you to provide your board of directors with the necessary documentation to prove governance over your vendor risk management program to meet increasingly stringent cybersecurity compliance requirements.