Third-Party Risks#

Collaboration with different third-party organizations is crucial in today’s digital environment for efficiently managing modern corporate operations. While there are many advantages to these relationships, they also bring about a web of connected risks that can penetrate and weaken an organization’s security posture. Understanding and reducing third-party risks have become crucial for preserving operational integrity and protecting sensitive data in today’s dynamic business environment. This article discusses the main categories of risks associated with the incorporation of third parties into enterprises as well as the strategies for mitigating these risks.

Why are Third-Party Risks a Major Cause of Concern?#

A business’s functionality and operation depend heavily on third parties. Third parties can include vendors, suppliers, technology partners, and others. These relationships, however, bring with them a set of possible risks that have the ability to compromise the entire organization. Despite being significant, these third-party risks are routinely underestimated or disregarded. Notably, these risks can arise from various factors, such as the management of vendors, the seamless integration of diverse systems, and the potential lack of support from vendors over time.

The interplay of these risks derives from the first decisions taken when selecting a vendor to be a part of the enterprise’s solution. At that point, the decision may be in line with the needs and goals of the company. But over time, a misalignment may occur due to the dynamic nature of enterprises, changing vendor capabilities, and shifting operational requirements. What was previously a good fit could no longer be appropriate given the changing needs of the business.

It’s a difficult task to maintain and optimize sophisticated systems within an organization. The company may need to review its choices about third-party collaborations and the risks involved. Supply chains extend beyond simple, direct connections and can become intricate and expansive. In such cases, there is a dynamic and ever-changing interplay between various entities, each contributing to the overall functionality of a system.

For instance, technology supply chains can be quite complex, involving a series of steps and parties responsible for different aspects of a technology solution. This complexity can lead to potential vulnerabilities within the system. One specific area of concern is code development, where parts of a software application might be developed by external parties (i.e outsourced code development). Additionally, the ongoing maintenance of the systems, which can involve multiple contributors, is another source of vulnerability. Finally, in the context of cloud-based solutions, data is often stored on servers provided by third-party companies. This arrangement, while convenient, introduces its own set of potential risks related to data security and privacy.

Major Categories of Third-Party Risks#

This section discusses the major categories of third-party risks in detail.

1. Vendor Management#

A vendor is an external entity that provides goods, services, or technology to an organization. Vendor management involves overseeing and maintaining relationships with these external suppliers to ensure the effective delivery, quality, and value of their offerings. The biggest challenge associated with vendor management is striking a balance between meeting the organization’s needs while managing risks and maintaining control over the outsourced processes. When choosing a vendor, considerations include evaluating their capabilities, reputation, alignment with organizational goals, support services, and ability to adapt to the organization’s changing requirements. Some of the issues related to vendor management include the following:

System Integration#

The enterprise structure is a complex arrangement comprising various interconnected components, each serving specific functions within the organization. These components collectively work together to achieve the overall objectives and functions of the enterprise. System integration refers to the process of connecting and harmonizing these diverse components, often involving software systems, to create a unified and functional unit. It ensures that information flows seamlessly between different parts of the organization, allowing data and processes to be shared and utilized cohesively.

System integration, if not done correctly, can also introduce vulnerabilities. The intricate nature of connecting diverse systems and components can lead to gaps in integration, where certain functions or data do not align correctly. These gaps can be exploited by malicious actors, leading to disruptions, data breaches, or system failures. Moreover, integration requires careful coordination, and changes made to one component might inadvertently affect others, potentially causing unintended consequences. Therefore, proper planning, testing, and ongoing monitoring are crucial to identify and address vulnerabilities that may arise during system integration.

Mitigating the Risks Associated With System Integration:

  • Conduct thorough due diligence during vendor selection, assessing the vendor’s track record in integration, security practices, and willingness to collaborate on integration challenges.

  • Establish clear communication channels and expectations with the vendor regarding integration processes and security measures to align objectives and remove misunderstandings.

  • Conduct rigorous testing and validation of integrated components to identify and rectify integration gaps or vulnerabilities promptly.

Lack of Vendor Support#

Lack of vendor support presents a significant challenge to organizations. This issue manifests when the original manufacturer of hardware or software ceases to offer assistance. This commonly occurs when an item reaches its end of life (EOL), signifying the culmination of its useful lifespan from the manufacturer’s perspective. At this point, essential support, including patches and fixes, becomes scarce, leaving organizations vulnerable to emerging security threats. The absence of manufacturer-backed solutions compels organizations to rely on compensating controls to mitigate potential risks. Here, the distinction between EOL and end of service life (EOSL) is crucial; EOSL indicates the point at which a manufacturer discontinues sales and support services, often leaving systems without ongoing maintenance or updates.

The lack of vendor support unveils itself in diverse scenarios, amplifying security concerns. This can arise when a system is implemented by a third-party vendor, and that vendor’s configuration is no longer upheld, or when the vendor goes out of business. In these instances, the underlying technology might still be endorsed by the original manufacturers, but the third-party middleware’s absence raises questions about the system’s capacity to be updated or patched. Consequently, the entire responsibility of testing and risk management falls onto the organization, and the expertise required for comprehensive regression testing might be lacking.

Mitigating the Risks Arising Due to the Lack of Vendor Support

  • Adopt a robust risk management plan that includes regular assessments of vendor support status. If a product is nearing its end of life or end of service life, organizations must explore alternative solutions and plan for transitions.

  • Develop strong relationships with vendors to stay informed about their product lifecycles and their future support availability.

  • Implement compensating controls for dealing with imminent security issues until a suitable solution is implemented.

2. Supply Chain Risks#

The supply chain represents the intricate network of processes, entities, and resources involved in producing and delivering goods or services to organizations. This interconnected network spans across various stages, including raw material acquisition, production, distribution, and delivery. Supply chain vulnerabilities can have a profound impact on this complex ecosystem, potentially leading to disruptions, breaches, or compromised quality. When vulnerabilities arise, they can exploit weak points in the supply chain, causing delays, failures, and even security breaches.

Issues in the supply chain have a significant effect on a company’s operations, reputation, and stability. A compromised supply chain can result in delays in production, missed deadlines, and an inability to fulfill customer orders, leading to financial losses and customer dissatisfaction. Additionally vulnerabilities can cascade through the supply chain, affecting various partners and stakeholders, and amplifying the scope of the problem. The interconnected nature of modern supply chains means that a disruption at one point can trigger a domino effect, impacting multiple stages of production and distribution.

Supply chain attacks occur when malicious actors exploit vulnerabilities within the supply chain to gain unauthorized access, compromise data, or sabotage operations. Attackers may target a weaker link in the chain, often occurring during the manufacturing or distribution process. They may introduce malicious code into products, tamper with components, or compromise suppliers’ systems to gain entry into the target organization’s network. These attacks exploit the inherent trust in supply chain relationships, allowing attackers to infiltrate and compromise organizations indirectly. As supply chains become increasingly complex and interconnected, the need for robust security measures and thorough risk assessments is paramount to mitigate the potential impact of these vulnerabilities and attacks on businesses.

Mitigating the Supply Chain Risks

  • Conduct thorough due diligence of vendor facilities, processes, and security measures. Verify their compliance with established security protocols.

  • Avoid excessive reliance on a single vendor for critical components or services. Instead, maintain relationships with alternative vendors to reduce the impact of supply chain disruptions.

  • Include specific security and risk management clauses in contracts with vendors. Define expectations for data protection, incident reporting, and compliance with security standards.

3. Outsourced Code Development#

In the modern digital landscape, code serves as the fundamental building block of software and applications that power nearly every facet of our lives. The reliance on code is pervasive, from running critical systems to facilitating daily interactions. However, this very reliance also underscores the potential for code to be the largest source of vulnerabilities within technology systems. Written by humans and subject to errors or oversights, code can harbor weaknesses that, when exploited, lead to security breaches, data leaks, and system failures.

Outsourced code development introduces a distinct set of risks. Organizations often collaborate with external parties to develop code for efficiency or expertise reasons. However, this reliance on third-party code fragments can inadvertently introduce vulnerabilities. When code is buried within processes and developed externally, visibility and control over potential risks diminish with each step away from the source. The lack of control over code development, particularly when outsourced, can lead to inadequate testing, inadequate security practices, or hidden vulnerabilities. This lack of control not only exposes organizations to potential risks but can also hinder timely responses to emerging threats. Since code serves as the foundation of digital systems, ensuring secure practices and maintaining visibility over its development is paramount to mitigating vulnerabilities and safeguarding the integrity of technology solutions.

Mitigating the Risk of Outsourced Code Development

  • Thoroughly assess potential third-party vendors for their reputation, expertise, and security track record in code development.

  • Ensure that your contracts with third-parties explicitly outline security requirements, testing protocols, and code ownership to establish accountability.

  • Enforce secure coding standards and practices, specifying guidelines for vulnerability detection and prevention.

  • Set up code escrow agreements to retain access to source code, enabling mitigation if the vendor ceases operations.

  • Maintain ongoing communication with the vendor to receive timely updates and patches for identified vulnerabilities.

  • Engage independent experts who are not involved in the original code creation process to evaluate the code’s security, functionality, and adherence to best practices.

4. Data Storage#

Data storage is a critical aspect of modern enterprises, encompassing the repository of information crucial for operations, analysis, and decision-making. Unlike the traditional approach of centralizing data in a single location, contemporary data storage often follows a distributed model, where data is dispersed across multiple enclaves and configurations within an organization. This approach allows for scalability, redundancy, and optimized access to data. However, the challenges of managing distributed data storage should not be underestimated. The diverse locations and configurations introduce complexities in maintaining consistent access controls, data integrity, and security measures, giving rise to vulnerabilities that can be exploited by malicious actors.

The distributed nature of data storage can lead to inconsistent security measures, where one enclave might possess robust security while the other lags behind. This creates openings for unauthorized access, data breaches, or the manipulation of data stores, potentially compromising the confidentiality and integrity of sensitive information. Additionally, the management of backups, disaster recovery, and data replication becomes more intricate in a distributed setup, increasing the likelihood of errors and data loss.

Mitigating the Risks Associated With Data Storage

  • Implement robust access controls to ensure only authorized individuals can access and modify stored data.

  • Enforce a robust data storage policy having clear guidelines and procedures for how data should be stored, accessed, managed, and protected across the organization.

  • Leverage a well-structured checklist tool to ensure that all necessary steps and considerations are taken into account when implementing and managing data storage solutions.

  • Classify data based on sensitivity and implement different security measures accordingly.

  • Maintain regular backups of data to prevent loss in case of system failures, cyberattacks, or accidental deletion.

Conclusion#

In essence, the presence of third parties in the enterprise environment introduces a layer of potential vulnerabilities that can propagate and evolve over time. This understanding underscores the need for ongoing vigilance, assessment, and strategic planning to effectively manage these third-party risks and maintain the integrity and security of the enterprise’s operations.