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Vendor Risk Assessment: Best Practices

Published on Jan 27 2023


Vendor partnerships can either benefit the company or put it at risk for disruptions to its operations regarding its infrastructure and ability to do business as usual. Therefore, it is essential to execute a process of
vendor risk assessments to vet and monitor cyber risks posed by suppliers and other third parties.  

With the help of a thorough vendor risk assessment (VRA), the company receives a clear image of the cyber risk involved in working with the vendor. The latter will provide all the necessary information, supporting evidence, and explanations.  

A well-thought-out vendor risk assessment (VRA) saves the company from dealing with a vendor that is, at best, unreliable and, at worst, cybercriminal. This article provides guidelines for conducting a proper vendor risk assessment. 

What Is a Vendor Risk Assessment? 

Vendor risk assessment (VRA) is the process of identifying and evaluating potential cyber risks they may encounter when working with a specific third party.  

Performing a vendor risk assessment aid in identifying vendor-related risks and quantifying and prioritizing them based on severity, likelihood, and other criteria, allowing for more organized, effective risk management. Additionally, key requirements in compliance and security frameworks like ISO and NIST 800-53 are matched to the findings.  

What Are the Different Types of Vendor Risk? 

There are primarily three types of risk associated with vendors: 

Profiled Risk 

Each vendor and its relationship are unique and entails a unique set of risks; for example, payment processing businesses have a bigger risk than marketing firms. 

Inherent Risks 

Before working with the company and implementing security measures and controls, the vendor faces risks connected to information security, operational, financial, and other business activities. Many methods exist, like questionnaires and external danger monitoring, that helps identify and address such threats. 

Residual Risk 

After all the company’s required measures have been put in place, what’s left are the residual risks. Unfortunately, these risks cannot be totally removed, but they can be reduced to manageable levels with the right mitigation measures. 

What Are the Best Practices for Vendor Risk Assessment? 

The following are important procedures to take when performing a vendor risk assessment. 

Prioritizing vendors 

Per the collaboration objectives, vendors are granted different levels of access to the company’s infrastructure and data. Vendors with access to sensitive information represent the greatest risk; thus, it is important to rate them accordingly.  

Defining the assessment scope 

To be thorough and relevant, a vendor risk assessment needs to focus on the precise aspects of the vendor’s operations and data or systems that will be shared. 

Gathering information 

Check the vendor’s security policies, processes, and controls. There should be records of security policies, incident response plans, security certifications, and the history of any penetration tests that have been run before. 

Evaluating vendor cybersecurity posture  

Information acquired throughout the review process is used to determine the state of the vendor’s cybersecurity and to locate any weaknesses or threats. Data storage, data transit, and data deletion procedures are all aspects of evaluation of vendor data protection procedures.  

Depending on the nature of the vendor, this may require a thorough examination of their operational methods, a thorough examination of their controls, or in-depth interviews with key individuals. Moreover, verification is important if the vendor complies with all applicable rules and regulations, such as the General Data Protection Regulation (GDPR) and the Health Insurance Portability and Accountability Act (HIPAA) 

A scoring system should be utilized to assess the risk provided by a vendor and prioritize the vendors that require the greatest attention. 

Communicating with the vendor 

Sharing the evaluation results with the vendor and collaborating with them to fix any uncovered issues is a crucial next step. This ensures the vendor is aware of the problem and will fix it. 

Standardizing the vendor risk assessment 

It is important to create rules and procedures for conducting vendor risk assessments since doing so will save time and effort while ensuring that assessments are conducted consistently and thoroughly. To verify that all vendors are evaluated in the same way and that no critical factors are missed, it is helpful to use a standardized questionnaire.  

Confirming financial stability

Confirming the vendor's financial stability is the highest priority. Usually, cybersecurity experts focus on the technical side when assessing vendors. They want to ensure the vendor can perform the required work safely and according to the required standards. 

The vendor’s financial stability influences the vendor’s capacity to invest in and maintain robust security measures to resist the financial impacts of cyber-attacks. 

Monitoring and re-assessment 

A company needs to keep an eye on its vendors to ensure they are still up to snuff regarding security, as cyber threats change constantly. Automating and streamlining the vendor risk assessment process is possible with the help of third-party risk management systems like SALIENCE. 

Conclusion

A vendor risk assessment is essential for the firm and its clients to maintain the company’s security and safety in an ever-changing business environment with numerous dangers and risks. Defining the risk types and criteria allows the company to make the right decisions, mitigate the risk’s effects, and avoid attacks.

 


 

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