According to a 2023 report by IBM, the average cost of a data breach is $4.45 million, which is why over 50% of the surveyed companies are increasing their cybersecurity investments. However, most security teams struggle to determine where these investments should go.

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While investing heavily in your organization’s internal cybersecurity measures seems logical, it may not be enough to ensure complete safety. With a growing supply chain, you must also consider vulnerabilities and other security risks derived from third-party vendors like suppliers and service providers.

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Whenever a vendor connects to your system, your risk exposure expands due to the larger potential attack surface. You need to invest in a structured cyber vendor risk management program to prevent any blind spots across third-party networks.

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This guide will explain why this is the case and how such a program differs from regular vendor risk management (VRM). We’ll also share tips to help you manage cyber vendor risk effectively.

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What is cyber vendor risk management?

Cyber vendor risk management (or cyber VRM for short) is a set of practices that allow an organization to identify, assess, and mitigate cybersecurity risks coming from third-party vendors. The need for such practices stems from the fact that data sharing with vendors is virtually unavoidable—cyber VRM is part of the precautions you take to minimize your attack surface.

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Another reason why you should invest in cyber VRM is the lack of control over a third party’s operations. You can’t impact their security practices and internal controls directly, but you might still suffer the consequences of a breach on their end.

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Poor communication after security incidents is also a significant concern. According to a 2022 Ponemon study, only 34% of organizations feel confident that a third party will duly notify them of a breach that impacts the organization’s sensitive data.

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The role of cyber VRM is to address all of the above issues and enable awareness of the overall attack surface. It helps risk managers create more effective response plans.

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The difference between vendor risk management and cyber vendor risk management

A cyber VRM strategy is typically part of a more comprehensive VRM program designed to help identify and mitigate many types of risks, such as:

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• Information security risks
• Operational risks
• Financial risks
• Regulatory and compliance risks
• Reputational risks

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Cyber risks, however, need special attention throughout the vendor lifecycle because of the many data points and security domains you need to monitor. Since a typical VRM program might not adequately fulfill this function, you should define specific cyber VRM best practices, such as:

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• Maintaining a log of vendor-accessed items
• Devising and reviewing security questionnaires
• Outlining additional cybersecurity regulations due to your partnership with a vendor
• Tracking cybersecurity mitigation controls

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In some cases, cyber VRM can act as a standalone practice—especially in industries handling highly sensitive data, such as healthcare and finance.

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Many organizations may also opt for an overarching third-party risk management (TPRM) program. It goes beyond cyber or even vendor risks and contains common practices to address all risks that may arise from exposure to third parties.

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Benefits of implementing a cyber VRM program

A comprehensive cyber VRM program offers the following noteworthy benefits:

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• Complete overview of vendor security vulnerabilities: Effective cyber VRM implementation lets you monitor the broader data-vulnerable surface of your upstream and downstream vendors.
• Targeted assessments of cybersecurity risks: Thorough risk assessments are a crucial component of cyber VRM as they let you identify threats before they materialize.
• Proactive insight into the risk landscape of fourth parties: Your vendors may have quite a few third parties partnering with them, and any vulnerabilities on their end only add to your risk profile. A quality cyber VRM program includes practices that give you more control over the impact fourth-party risk events can have on your organization.
• Ongoing incident tracking: Ideally, cyber VRM defines methods to get real-time data on any incident affecting your sensitive information, helping you respond promptly.
• Compliance-driven action plans: Depending on your industry, cyber VRM implementation may entail practices recommended by major regulations and standards, making it easier to comply with them.
• Increased stakeholder trust: Customers, investors, and other stakeholders are typically more likely to trust organizations with effective and publicly observable cyber VRM practices.

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5 tips for successful cyber vendor risk management

When developing your internal cyber VRM program, you may find these five tips useful:

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1. Consider outlining vendor cybersecurity KPIs.
2. Find ways to standardize vendor risk assessments.
3. Continuously build and monitor your vendor inventory.
4. Ensure accountability and clear communication.
5. Streamline how you’ll manage fourth-party cyber risks.

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1. Consider outlining vendor cybersecurity KPIs

Cybersecurity KPIs let you quantify vendor risks and shape your efforts to mitigate them. Ongoing tracking of the right metrics provides a realistic overview of how your risk landscape evolves with time and informs timely corrective action.

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Here are a few examples of vendor cybersecurity KPIs you should track:

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• Security incidents: The total number of incidents in a predetermined time frame.
• Intrusion attempts: The number of unsuccessful data breaches or unauthorized access attempts.
• Security update frequency: The rate at which a vendor updates security measures and policies.
• Mean time to detect (MTTD): The average time it takes a vendor to detect an incident.
• Mean time to resolve (MTTR): The average time it takes to resolve an incident.

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Keep in mind that the KPIs you’ll track also depend on the established cybersecurity standards and frameworks applicable to the vendor, especially in highly regulated industries.

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2. Find ways to standardize vendor risk assessments

You’ll likely perform cybersecurity-focused risk assessments when evaluating current vendors and onboarding new ones. Try to standardize these assessments to develop clear benchmarks based on your acceptable risk threshold. 

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To do that, define your risk appetite and decide on the standard criteria you’ll compare vendors against. You can then create a risk assessment questionnaire to ensure all prospective vendors provide comparable data for your records. In terms of cyber VRM, the questionnaire should collect data for matters such as:

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• The vendor’s inherent cybersecurity risks
• Access control measures, including provisioning, updating, and deprovisioning users
• Technical controls, such as encryption, logging, monitoring, and vulnerability management mechanisms
• Cyber risk governance practices

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Once the completed questionnaires are in, analyze the answers and assign clear cyber risk levels to each potential vendor before making procurement decisions. 

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3. Continuously build and monitor your vendor inventory

To streamline cyber VRM, you need a centralized inventory that will house all vendor data. While this is a typical VRM practice, it’s particularly important for cyber VRM due to the many security data points you need to track. Without an inventory, visibility into relevant risks and controls may be compromised.

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Besides basic vendor data, your inventory should give you insights into each vendor’s risk profile. This includes their risk scores, security reviews, and information on any past incidents.

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Your first instinct may be to keep all this data in a spreadsheet, but that’s an outdated method; it requires manual maintenance work and leaves much room for unidentified threats. Instead, you should streamline your workflow using vendor management software with automation. Many robust tools on the market help you create a real-time (or near real-time) overview of key vendor data, making monitoring easier.

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4. Ensure accountability and clear communication

According to the Ponemon study mentioned earlier, only 40% of respondents say they regularly update the board of directors on the state of their third-party risks. This lack of communication hampers the ability to make timely, informed decisions, which can be detrimental in the fast-paced cyber risk landscape.

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You can avoid this issue by establishing a clear communication channel. For cyber VRM, assign the responsibility of risk monitoring to specific people and teams, such as:

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• Cybersecurity analyst
• Compliance analyst
• Chief information security officer (CISO)
• Data protection officer (DPO)
• IT security specialist

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Document your reporting process so everyone knows whom to update on risk assessment results, incidents, and other findings. Additionally, consider developing cross-department communication channels to enable relevant team members to contribute to the cyber VRM program.

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5. Streamline how you’ll manage fourth-party cyber risks

Identifying and managing fourth-party risks is challenging because of the many ways in which unfavorable events can occur. Plus, there is no direct contact or legal liability between you and fourth parties, making it hard to gather the data you need to safeguard your systems.

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One way to counter these problems is to ask your vendor for a SOC report. It gives you insights into their approach to cybersecurity and vendor risk management—including information about their use of critical fourth parties.

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You can also make fourth-party risk management a part of your vendor due diligence (VDD) process. The best way is to ask questions about a vendor’s relationship with third parties, with the goal of gathering the following data:

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• Degree of outsourced operations or subprocessor information gathering
• Sensitivity of shared data
• The vendor’s third-party evaluation and risk assessment process
• Incident response plans

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Optimize your cyber VRM program with Vanta

Effective cyber VRM programs are best supported by the right tools. Vanta's Vendor Risk Management soluton streamlines your workflow through many features, such as:

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• Centralized inventory with automated vendor discovery
• Comprehensive dashboard with data on vendor status, risk profile, category, etc.
• Customizable vendor risk auto-scoring
• Automated vendor security reviews

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And thanks to Vanta’s 300+ integrations, you can connect your infrastructure to get a holistic view of your data and documentation in one place. Watch this free webinar to see Vanta in action. Or schedulle a custom demo today.

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