Why Third-Party Risk Management Can't Be Ignored
Only half of companies have established a centralized third-party risk management program, yet more than half have experienced third-party related breaches in the last year. Third parties, including vendors and contractors, play vital roles in business operations, but they also introduce inherent risks. Ignoring these risks can lead to devastating consequences for your business.
Whether it’s the infrastructure provider hosting your application, the delivery service transporting your products, or the threat prevention system safeguarding against attacks, third parties act as extensions of your business. They are your hands, eyes, and feet in crucial areas. However, their involvement also poses risks that must be managed proactively. Neglecting these risks as you scale your operations can result in significant repercussions.
What’s the real risk?
With over half of companies experiencing breaches related to third parties, it’s not a matter of if, but when your business will be affected. The odds are against you if you bet on avoiding such incidents within the next 12 months.
It's worth noting that just a handful of breaches from widely-used providers can impact thousands of companies. Therefore, the seemingly high percentage of companies experiencing breaches could be attributed to a small number of incidents, but the excessive number of third party related breaches are not due to one or two large providers. In November of 2023 IT Governance UK reported that 48% of publicly disclosed breaches originated with third parties and “[y]ou might think that these numbers are skewed by MOVEit, as it still seems to be regularly covered in the news, but this particular supply chain attack only accounted for 16 of this month’s 227 third-party incidents, or 7%”. Recent headlines like these show how common and impactful third party related breaches are:
I have a contract that assigns responsibility to my third party, so I’m good, right?
No contract, regardless of how great the lawyer is who wrote it, can protect an organization from the impact of a breach and certainly cannot prevent a breach from occurring. The impact to a company’s reputation and customer trust doesn’t take into consideration how much risk was transferred in a contract. In the past several years regulators and law makers have placed greater requirements on organizations to take measures to assure that their third parties have the proper measures in place to meet privacy obligations and protect sensitive data. Due diligence, or third party risk management, is no longer just the smart thing to do, it’s an obligation.
Implementing a great third party risk management program is the way to effectively identify and treat potential risks related to third parties; and while it can’t guarantee that there will not be a data breach, it can greatly reduce the likelihood of a breach, as well as reduce the impact to a company’s reputation and finances should a breach occur. If a company can demonstrate that it has taken the appropriate precautions to avoid a potential breach and responds well to an incident, it is reasonable to expect that their reputations will remain in better standing after a breach than a company that turned the other cheek or swept things under the rug. Similarly, laws like the EU GDPR explicitly consider both the efforts taken by an organization to mitigate damage to data subjects and any intentional or negligent acts when applying penalties.
Ok, so third party risk management matters- what do I do about it?
Stay tuned for our upcoming posts on building a comprehensive third-party risk management program. In the meantime, explore resources such as Locktivity, which provides a third party risk platform that helps you configure and automate your TPRM program in just minutes, and the Third Party Risk Association that provides valuable resources including a third party risk management guidebook.
Don't wait until it's too late. Take proactive steps to protect your business from third-party risks today.