What is a Third-Party Risk Assessment, and Why Do They Matter?

Have you ever gambled? Felt the rush of possibly winning (but most likely losing) some cold hard cash? There are many things in business worth gambling on – innovative ideas, promising hires, or fancy tech solutions. But cybersecurity risk is not one of them.

For instance, in 2022:

• The average number of companies affected by a third-party breach doubled.
• Technology vendors were the most likely vendors to fall victim to third-party breaches.
• The overall cost of a data breach (including outliers) was $75.21 million.

If you’re not willing to gamble away over $75 million, your third-party cyber risk assessment must be effective and accurate — as third-party cyber risk is only growing as digital ecosystems grow more complex.

There are multiple ways to assess third-party cyber risk. However, few are effective when accurately portraying risk level.

In this blog, we explore:

• What a third-party cyber risk assessment is.
• Why it’s crucial to perform an accurate risk assessment.
• How you can perform the most accurate risk assessment possible.

What is a Third-Party Risk Assessment

Different organizations conduct risk assessments in their own ways. But at its core, a third-party risk assessment determines how well a vendor could prevent an attack and what’s at stake for your company if an attack on your vendor is successful.

A risk assessment will examine one of your vendors and identify:

• How much access they have to your data.
• How much you rely on them for day-to-day operations.
• How effectively they could prevent or stop an attack.

Why Do I Need to Assess My Vendors?

No business does everything on its own. Vendor risk assessment is a key business practice because in this day and age, many businesses rely on third-party vendors for critical operations like payroll, HR, customer relationship management, project management, etc.

A comprehensive risk assessment will only become more important as our digital ecosystem becomes more complicated. Every link in your chain needs to be strong because vulnerable third-party vendors are stepping stones to the primary target — your organization.

Risk assessments can help your organization make better decisions for your business’s cybersecurity posture, such as:

• “Is this vendor too risky to be involved in our operations?”
• “Would my organization benefit from cyber insurance or spending more to put additional controls in place?”
• “What would be the true business impact if one of my third-party vendors was attacked?”

Also, breach reporting times are too slow and only getting worse. The average breach disclosure time in 2022 was 108 days, 50% more than in 2021. The fewer breaches we report, the less we can inform our practices on public knowledge to prevent them.

Additionally, the longer the disclosure time, the longer a threat actor has to wreak havoc on your systems. The more time a threat actor can spend in your systems, the better their chance of finding new vulnerabilities.

The Trouble with Modern Risk Assessment Methods

A practical third-party cyber risk assessment is all about reducing uncertainty and understanding the immediacy of risk. However, modern risk assessment methods often struggle to paint a clear, accurate picture of risk or communicate risk sufficiently.

As part one of this blog series explains, questionnaires are a common way of assessing vendor risk. But questionnaires are complex and challenging for vendors to complete. Many of the questions may need to dig deeper into risk potential, and vendors may compromise accuracy in a rush to complete them. Plus, questionnaires can be costly and time-consuming to create.

With bad actors’ tactics, techniques, and procedures (TTPs) growing in sophistication, businesses need a way to accurately quantify and monitor cyber risk across thousands of third-party vendors.

How to Perform an Accurate Risk Assessment

An accurate risk assessment will ultimately give companies the data they need to consider each vendor’s risk to determine whether it’s worth continuing a business relationship.

Good risk assessments remove the manual burden from vendors and your organization (e.g., questionnaires) by automating repetitive processes, viewing risk from several angles (compliance, financial, technical), and empowering you to communicate risk both to executives and vendors.

The best way to perform an accurate third-party risk assessment is to adopt a tool that provides a holistic approach to rating your third-party vendors by risk level.

A third-party risk assessment tool allows you to dig deeper into a rating to ask key questions such as:

• Is the financial risk high, but the service is crucial to business operations?
• Does a vendor have a C just because it’s a large company with an extensive digital footprint?
• Does a vendor have an A because it has a small digital footprint but a high financial impact?

Using a third-party risk solution is better than a questionnaire because you don’t have to dedicate time to building the questionnaire, and there’s no need to rely on vendors for accurate answers. Also, you can easily identify your relationship with high-risk vendors to determine if they’re worth keeping.

Your tool should be able to:

• Provide a full view of supply chain risk and translate technical data into digestible findings.
• Calculate probable financial impact if a third-party vendor, partner, or supplier experiences a breach.
• Measure the external compliance level of a vendor.
• Detect the likelihood of a ransomware attack on your organization.

Ultimately, a risk assessment will help CISOs do their job better by clearly explaining the potential impact a vendor could have on your company and then deciding whether that risk is worth the vendor’s services.

How to Assess Risk the Black Kite Way

Black Kite’s third-party risk solution provides a full view (compliance, financial, technical) of your third-party vendors and ranks them by their cyber hygiene status, using letter grades A, B, C, D, and F. If using the FAIR™ module, vendors can be sorted by potential financial impact (if a breach were to occur).

In addition, with a solution like Black Kite’s Ransomware Susceptibility Index®, you can:

• Understand which vendors are most prone to ransomware and calculate event susceptibility within minutes.
• Develop a course of action for remediation by cross-correlating findings with Black Kite’s Cyber Risk Assessment.
• Develop more informed policies to avoid production, reputation, and financial losses with reliable data.

With Black Kite, it’s easy to non-invasively quantify and monitor cyber risk across thousands of third-party vendors. To learn more about how your business could benefit from a truly accurate third-party cyber risk assessment, perform a free cyber risk assessment with Black Kite today.