Vendor risk management (VRM) means evaluating partners and associates before a relationship is established and during execution of the business contract. The key to VRM is in understanding the cyber security programs your vendors use to understand how well they can secure your data. VRM helps to ensure your vendors keep their contractual obligations- mitigating the risk to your business. There are several risks vendors can impose on your organization. They include:
If your vendor has poor financial performance, you want to know before contracting with them. That’s why many companies monitor their vendor’s credit. You should ask other companies who have done business with the vendor for references. That way, you can evaluate their project plan and all the things they intend to do before signing a contract.
Risk to Your Reputation
You need to know if a potential business associate has been sued while you are engaged with them since this could adversely affect their performance while operating under your sanction. The damage that could be inflicted on your reputation, should a third party vendor not perform up to standard, could be significant. Damage to your reputation can affect your company, especially if sensitive customer information is lost or stolen due to a vendor’s security failure.
The legal risks of sharing sensitive data with vendors are many. If your vendor’s security is compromised, you could lose customers’ personal identification information (PII) such as healthcare records and social security numbers. According to the law, you are responsible- not your 3rd party vendors. If you don’t clarify security expectations in vendor contracts, you may be liable should your vendor compromise client data.
Once you have established your potential vendor’s credit profile, you’ll probably feel more comfortable about the vendor’s financial standing over the course of the business process. This is exemplary of how certain elements of vendor risk don’t require you to perform ongoing monitoring. Cyber risk, on the other hand, is not nearly as simple as credit risk.
Cyber risk is unlike other concerns in that breaches can take place at a moment’s notice- breaches which could cause catastrophic harm to your organization. You should not rely on intermittent snapshot assessments of your 3rd party vendor’s security profile to maintain an ongoing view of the cyber risk they may be imposing on you. What makes cyber security unique is the fact that it can pose all of the above risks already discussed!
Cyber risk management isn’t done when a vendor signs the contract. Managing cyber risk takes continual monitoring of the ways the vendor adheres to your security needs. You need to know if they are accessing your data in an unauthorized way and if your vital data can be compromised by their actions at all times. Any miscue or wrong move can cause major damage to your organization.