Vendor Risk Assessment: Best Practices

23% of organizations experienced security incidents from a third party — up from 9% in 2020, based on the State of TPRM report. Working with various suppliers and service providers is often essential for growth, but it can also introduce risks to your business. This is a critical concern as many third parties have access to an organization's network, systems, and data, creating potential vulnerabilities that could be exploited by cybercriminals.

Notably, around 98% of organizations are connected to a third party that has experienced a breach, with 29% of those breaches attributed to third-party attack vectors.

To decrease the risks associated with outsourcing, thorough vendor assessment determines whether vendors are able to meet the organization’s expected standards and requirements for security and GRC.

Before moving on, let us first differentiate between a vendor and a sub-processor.

Vendor: A vendor is an organization or person that supplies items or services to another company. They can provide a diverse array of goods and services from basic raw materials to professional services.

Subprocessor: A subprocessor, as used in the context, refers to any third party that processes data on behalf of a data processor (the primary contractor) that is processing data for a data controller. This term is most significant in relation to data protection laws such as General Data Protection Regulation (GDPR) in the European Union (EU).

Significance of vendor assessments

The Third Party Risk Management market is forecasted to be $6.8 billion by 2024 and $19.7 billion by 2032. This exponential growth underscores the critical importance of robust vendor assessments in today's business environment. 

Comprehensive vendor assessments, facilitated by advanced risk management software platforms, help mitigate these risks by evaluating the reliability, security, and compliance of third-party vendors. This not only safeguards the organization against potential disruptions and data breaches but also ensures adherence to regulatory requirements and industry standards. 

In March 2023, AT&T suffered a breach through one of its marketing vendors that compromised the Customer Proprietary Network Information (CPNI) of approximately 9 million wireless accounts. Compromised data included names, email addresses, phone numbers, the number of lines on an account, and wireless rate plans.

These incidents show that effective vendor assessments, supported by risk management solutions and risk control software, are essential for maintaining operational integrity, protecting sensitive information, and fostering long-term, trustworthy partnerships.

Challenges in vendor assessment

Incorporating third-party and vendor risk assessment into security strategy can bring forth a lot of challenges. The most common way to assess vendors is to send out security questionnaires and prepare an analysis report. From managing vendor inventories to reaching out to them and waiting for their replies, here are some of the common challenges that businesses across industries face when assessing vendors. 

Limited Bandwidth

One of the primary challenges in vendor assessment is the limited bandwidth of the risk management team. Large enterprises have an average of 173 third-party partners, while smaller organizations have an average of 16. Often, organizations do not have enough risk assessors to thoroughly evaluate every vendor, leading to potential oversights. This can result in inadequate risk identification and mitigation, ultimately exposing the organization to unforeseen threats.

Following up with vendors

The process of following up with vendors can be incredibly time-consuming and frustrating. Vendors may be unresponsive, causing delays in the assessment process. This back-and-forth communication can become an endless loop, consuming valuable time and resources. Moreover, maintaining consistent communication and obtaining necessary information from vendors can be challenging, further complicating the assessment process. As enterprises have a high number of vendors, it usually takes a lot of time to reach out to them and initiate the assessment process. Even after initiating the process, chances are that they will have to wait for some time till a response is received. The longest that we've waited for a vendor's response at SecurityPal is a little over a year and is still ongoing.

Manual processes

Many organizations still rely heavily on manual processes for vendor assessment, which can be inefficient and error-prone. Manual follow-ups, risk analysis, report preparation, and risk registration can lead to inconsistencies and delays. The lack of automation in these processes means that assessors spend a significant amount of time on administrative tasks rather than focusing on strategic risk management activities. Imagine you have to manage over 200 vendors in a database, monitor them, and manage them manually. It gets a little tedious and annoying after a while, right?

Best practices in vendor assessment

When optimizing your assessment process, understanding where to start can be challenging. By performing due diligence, carefully selecting vendors, and implementing continuous monitoring, you can significantly reduce your organization's exposure to business and safety hazards.

Our globally certified security analysts have answered nearly 2 million security questions, giving them key insights into vendor relationships and security priorities. Based on these insights, here are a few best practices for effectively managing third-party risks and securing your business from potential vulnerabilities.

Adopt industry frameworks

• NIST: Utilizing established frameworks such as the National Institute of Standards and Technology (NIST) can provide a structured approach to vendor assessment. These frameworks offer guidelines and best practices for managing risks associated with third-party vendors, ensuring a comprehensive evaluation process. They help organizations identify, assess, and mitigate risks systematically.