It seems that not a week goes by without a data breach or cyber attack topping the headlines. While larger organizations used to be the primary targets of bad actors seeking to steal sensitive customer information, they’ve shifted their tactics, and another cyber threat is becoming more prevalent: third-party cyber attacks.
In these attacks, hackers target a single, weaker organization with the explicit goal of gaining access to the systems of the companies with which the victim organization does business. The damage caused by third-party cyber attacks can be exponential. Detecting your vulnerabilities is a major challenge as many organizations may not be aware of their exposure to these threats– or where their biggest threats lie.
And that’s why third-party risk management (TPRM) is emerging as a top business priority. By proactively assessing and mitigating potential risks posed by your third-party relationships, you can reduce the likelihood of a cyber attack, prevent the loss of valuable data, and avert damage to your brand reputation.
In this article, we delve into the fundamentals of cyber risk, the importance of third-party risk management (TPRM), plus explain how focusing only on compliance can still leave your organization vulnerable.
Understanding Your Cyber Risk
Cyber risk is the likelihood a threat source will exploit a vulnerability and the impact that damage would cause to an organization's systems and networks.
The term “cyber risk” is broad, encompassing all potential threats waiting to infiltrate your network and disrupt business operations, which we all know can have catastrophic consequences. The repercussions of cyber risk also extend beyond damage and destruction of data or monetary loss and include theft of intellectual property (IP), productivity loss, and reputational damage.
From a study conducted by Forrester Consulting on behalf of CyberGRX, security and risk management professionals are most concerned about data breaches, IP theft, and malware. Thus, managing cyber risk should be a top priority for any organization that aims to protect sensitive information and ensure business continuity.
The Components of Cyber Risk
Several factors contribute to an organization’s overall risk posture (or status), and each one can be understood and considered in the context of ensuring a complete and effective cyber risk management strategy:
- A threat is any entity, circumstance, or event that could potentially do harm or have an adverse impact.
- A vulnerability is a weakness a bad actor could exploit, otherwise known as a threat source.
- Inherent risk represents the amount of risk that exists in the absence of controls, which are safeguards to avoid, detect, mitigate, or minimize cybersecurity risks.
- Residual risk is the amount of risk that remains after controls are taken into account.
Now for a bit of a reality check: Despite your best intentions, there’s no way to eliminate risk completely. But that’s okay!
In fact, you don’t want to remove all risk because it’s often necessary for innovation, progress, and organizational success. For example, some risks can lead to positive business outcomes, including exploring emerging markets and growth opportunities, expanding operations into new product areas, and partnering with new vendors.
However, just because you don’t necessarily want to eliminate all risk doesn’t mean it shouldn’t be managed. Additionally, because of the increased adoption of third-party tools and applications, your organization’s attack surface has greatly expanded. The Forrester study also showed that 82% of third-party threats present a significant risk for organizations, and 67% of organizations experienced a risk incident through a third party.
The bottom line: the best way to keep your organization safe in the face of cyber threats is to have a robust third-party risk management program in place.
What is Third-Party Risk Management or TPRM?
Third-party risk management, or TPRM, is the act of identifying and addressing any type of risk (for example, financial, fraud, or cyber) that’s associated with third-party entities.
In today's interconnected digital world, companies often rely on third-party vendors and partners to provide products and services critical to their operations. However, these relationships can also expose your organization to new vulnerabilities.TPRM involves implementing processes and controls to identify and assess, analyze and report, and monitor your cyber risks effectively.
TPRM includes conducting due diligence on third-party vendors and partners, assessing their security posture, and establishing contractual requirements that ensure compliance with security and privacy regulations. Note if you are managing strictly to compliance requirements, that does not constitute a TPRM program; risk management and compliance management are not the same thing.
How TPRM and Compliance Management Differ
Although regulatory requirements go to great lengths to protect customer and data privacy, managing solely to compliance measures can still result in significant vulnerabilities that leave your organization exposed to cyber threats.
Compliance involves evaluating an organization's adherence to a set of requirements to ensure that they are met. Compliance certifications are often used to signal trust and that the organization meets the legal, compliance, and procurement requirements of government agencies and enterprises. Moreover, some industries mandate that organizations must meet specific compliance frameworks to operate lawfully.
The goal of security is to guarantee the confidentiality, integrity, and availability of information. Security teams aim to identify potential threats facing the organization and implement measures to minimize the likelihood of breaches. They also work to reduce the impact of cyber breaches when they occur, respond to attacks, and restore any affected assets.
While compliance frameworks include security requirements, they may not provide a complete understanding of an organization's attack surface, the most probable threats, the techniques that hackers may use, and internal security gaps. In contrast, a robust risk management program can identify potential vulnerabilities and help organizations mitigate them.
A case in point is Equifax, which held several compliance certifications, including SOC2 and ISO, but suffered a massive data breach in which customer data was stolen. The breach occurred due to a vulnerability in the Apache Struts open-source software, which Equifax failed to patch. While Equifax was deemed compliant, the breach highlights the need for a comprehensive risk management program beyond compliance measures to ensure organizations are truly secure.
This chart illustrates similar examples– compliance measures were met, yet the organizations weren’t sufficiently secure and, as a result, experienced a breach.
Cyber attacks don’t just come at you head-on anymore. Cybercriminals have learned that targeting third parties is generally the quickest — and most lucrative — way to launch a cyberattack. Since these attacks are typically high-profile, the media coverage is significant, which means these hacker groups gain notoriety as well as fatter wallets. This is why every enterprise needs to establish a third-party risk management program. Yet, according to a Ponemon study, 58% of respondents reported not having a proper (or any) TPRM program in place. As a result, they can't ensure that the vendors they’re doing business with follow good cybersecurity practices. Don’t let this be you.
TPRM is a critical component of any organization's cybersecurity strategy; it helps to safeguard sensitive data, prevent disruptions to business operations, protect against cyber risks, and prevent financial and reputational damage. Additionally, managing solely based on regulatory and statutory compliance requirements may still leave you with third-party vulnerabilities.
Ignoring TPRM is not an option in today's digital landscape; failure to prioritize third-party risk management puts your entire organization at risk. Book a demo with our team to learn how CyberGRX can help you build an effective and efficient TPRM program.