Vendor risk monitoring is the process of continuously identifying, assessing, and managing security risks associated with third-party vendors. This effort is crucial to a successful Vendor Risk Management program as it ensures an organization’s third-party risk exposures remain within acceptable levels throughout each vendor's lifecycle.
In a Third-Party Risk Management (TPRM) program, vendor monitoring primarily focuses on two risk categories:
- Cybersecurity risks: Cyber risks and vulnerabilities in the supply chain increase your risk of being impacted by a data breach.
- Regulatory compliance risks: Misalignments with regulatory standards due to a vendor’s information security practices.
Depending on the risk mitigation objectives set by your stakeholders, a vendor risk monitoring solution could also track the following areas of risk exposure:
- Financial risks: Potential risks, such as security exposures, reputational risks, or data leaks, that could have a detrimental financial impact on the business.
- Business continuity risk: Operational risks and service disruptions caused by third-party vendors, such as the ubiquitous CrowdStrike incident.
What is the difference between vendor risk monitoring and vendor risk assessments?
Unlike traditional point-in-time assessments, which occur through vendor risk assessments, vendor risk monitoring involves ongoing tracking of emerging vendor risks. This process is also called “continuous monitoring” in Vendor Risk Management (VRM). When used in conjunction with point-in-time methods, continuous monitoring processes provide real-time awareness of emerging risks, even between risk assessment schedules.
To help security teams efficiently track continuous monitoring data for multiple vendor relationships, risk monitoring insights are typically quantified as a security rating to produce a risk score representing each vendor’s security posture. Security ratings are calculated by considering multiple risk categories potentially impacting vendor performance across cybersecurity and reputational impact metrics.
Depending on how important financial and continuity risk monitoring are to your risk management objectives, it might be most cost-efficient to implement a security rating tool for monitoring vendors against cyber attacks and reputational risks caused by poor security control practices.
Why is vendor risk monitoring important for Vendor Risk Management?
VRM programs are now dependent on a vendor risk monitoring component for three primary reasons:
1. The vendor ecosystem is dynamic
With digital solutions increasing integrations between service providers and AI technology being adopted en masse, a VRM program now requires a vendor monitoring component to keep up with emerging third-party vendor risks. A highly vendor-centric ecosystem also presents TPRM teams with the problem of keeping track of their rapidly expanding attack surface. To address this, the scope of vendor risk monitoring has been expanding to include the detection of unmaintained technologies.
Watch this video for an overview of how risk monitoring could be used to detect technology products in your attack surface.
2. Regulatory compliance is more contingent on effective third-party risk management
Third-party vendors continue to be one of the primary factors contributing to an organization’s data breach risks, and as a result, regulatory bodies are increasingly mandating continuous oversight of third-party vendors. These stringent vendor risk management process standards are especially being introduced in industries handling highly sensitive information and customer data, such as healthcare, finance, and critical infrastructure.
The Federal Reserve System, Federal Deposit Insurance Corporation, and the Department of the Treasury are just a few examples of agencies that have recently bolstered their third-party risk management standards.
Regulations often require organizations to maintain ongoing visibility into each vendor’s risk levels and have protocols in place for rapidly responding to discovered risks.
A vendor risk monitoring process that satisfies most regulatory requirements of enhanced third-party risk management typically involves security questionnaires mapping to popular standards, such as GDPR, HIPAA, NIST CSF, and PCI DSS.
The following video explains how a vendor risk monitoring solution can be leveraged to track and manage compliance in a highly regulated sector like finance.
Learn how UpGuard is protecting financial services >
To streamline the remediation process of discovered regulatory compliance risks, an ideal vendor risk monitoring tool must be capable of separating high-risk vendors through a vendor tiering model so that critical compliance risks can be readily prioritized.
3. Proactive risk management
One of the most significant benefits of vendor risk monitoring is its support of real-time risk detection and, as a result, rapid remediation responses. According to IBM, the cost of a data breach is directly proportional to the time taken to respond to an incident.
An efficient vendor risk monitoring solution could provide advanced awareness of third-party risks before they develop into security incidents, which could also reduce the significant financial, operational, and reputational risks associated with data breach events.
What is involved in the vendor monitoring process?
Vendor risk monitoring is involved across all the major stages of the Vendor Risk Management lifecycle.
1. Onboarding
During the onboarding stage of VRM, vendor risk monitoring is leveraged to streamline due diligence workflows by expediting the sourcing of certifications, completed questionnaires, and other security documentation for new vendors. Once completed, the vendor monitoring component of due diligence identifies high-risk vendor partnerships requiring more focused monitoring throughout their relationships.
A vendor monitoring process could also identify instances of risk appetites, with superficial risk scores identifying potential vendors who should be disqualified from onboarding considerations.
2. Ongoing risk assessments
Once onboarded, the types of risks that need to be addressed in a third-party risk treatment plan must be actively managed through a combination of point-in-time assessments and continuous monitoring, ideally within a single Vendor Risk Management solution. This critical phase of vendor risk monitoring ensures an organization's third-party risk exposure remains within tolerance levels.
Fourth-party risks can be accounted for through comprehensive risk monitoring coverage. This capability proved to be a competitive point of differentiation for VRM platforms during the global Crowdstrike incident.
Related: CISO strategies post-crowdStrike to safeguard the balance sheet.
This video demonstrates how extending risk monitoring to the fourth-party landscape benefits VRM efforts during global disruptions like the CrowdStrike event.
3. Stakeholder reporting
With regulatory bodies increasing their emphasis on TPRM practices and global IT disruptions caused by third-party service becoming common, Senior management now expects to remain informed of the organization’s evolving vendor risk exposure. Vendor risk monitoring processes should naturally integrate into stakeholder reporting workflows, pulling vendor risk insights that actually matter to stakeholders, such as:
- The state of the organization’s security posture.
- A list of your most critical vendors with the highest potential of impacting the business during a security incident.
- Each vendor’s security posture changes over time.
- Risk treatment plans for newly onboarded critical vendors
Vendor risk monitoring reporting helps stakeholders make informed strategic decisions that align with the organization’s evolving third-party risk exposure.
4. Offboarding
Risk monitoring during offboarding helps compliance teams confirm all retired third-party services have had their access to internal sensitive resources revoked, a critical requirement of data privacy regulations such as the GDPR. An attack surface management tool could support this aspect of risk monitoring during offboarding by detecting regions in your digital footprint where connections to retired third-party services are still active.
Watch this video for an overview of attack surface management.
4 types of vendor risks that are Important to monitor
A vendor risk monitoring program typically addresses the following types of third-party risks.
- Information security risks: Third-party vulnerabilities and exposures that could increase your risk of being impacted should a vendor suffer a data breach. Continuous monitoring of third-party information security risks ensures vendors follow best security practices to safeguard the sensitive data you entrust to them.
- Concentration risks: Instances where a single vendor is responsible for the stability of your critical services, creating a single point of failure. Detecting concentration risks will encourage third-party service diversification and reduce the threat of critical disruptions during a significant global outage.
- Compliance and regulatory risks: Instances where a vendor fails to adhere to legal and regulatory requirements, increasing your risk of suffering a costly violation fine and legal actions.
- Reputational risks: The threat of a vendor’s actions or poor cybersecurity standards harming your organization’s public image. A vendor risk monitoring solution accounting for third-party reputational risks provides users with a continuously updating incident and news feed identifying all third-party services potentially impacted by a major security incident picked by the media.
Top vendor risk monitoring challenges in 2024
The following vendor risk monitoring challenges typically limit the efficiency of Vendor Risk Management programs.
1. Manual processes
Reliance on manual processes produces some of the most significant challenges to vendor risk monitoring. Some example manual processes limiting the impact of vendor risk monitoring include:
- Using spreadsheets to manage questionnaires
- Manual data entry of questionnaire responses
- Manually responding to repetitive questionnaires
- Tracking questionnaires and risk assessments with email follow-ups
These outdated manual practices create delayed risk monitoring practices that either completely overlook critical vendor risks or delay their remediation. Without upgrading manual processes to more modern processes leveraging automation technology, third-party risk oversight will only increase as the business scales.
The following video illustrates how automation technology could increase the efficiency and scalability of vendor risk monitoring processes.
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2. Point-in-time assessments
Solely relying on point-in-time assessments limited vendor risk visibility to risk assessment schedules, providing a snapshot of your third-party risk exposure at a single time. This myopic approach to vendor risk monitoring fails to adapt to the dynamic nature of the vendor landscape, causing third-party risks arising between assessment schedules to be overlooked.
3. Insufficient data
Some vendor risk management programs adopt the poor practice of relying on vendor self-reported data received through completed questionnaires. Without an additional layer of verification provided by continuous monitoring processes, organizations could unknowingly be exposed to critical vendor security risks that will inevitably be exploited by cybercriminals.
Without independent verification of a vendor’s security posture through continuous monitoring, an organization operates under a false sense of security.
3. Unscalable VRM program
As an organization’s vendor ecosystem expands, managing vendor risks becomes more complex. Scaling risk monitoring efforts to account for hundreds or even thousands of third-party vendors, each with unique cyber risk factors and varying levels of criticality, could overwhelm even the most well-resourced Third-Party Risk Management teams.
Because vendor risk monitoring is a component of Vendor Risk Management, a scalable risk monitoring strategy can only be deployed on the foundation of a scalable VRM program, one that leverages automation technology to streamline all of the workflows in a Vendor Risk Management lifecycle.
Watch this video for some time-saving tips that will increase the efficiency of your Vendor Risk Management program.
