The digital landscape of today's business world is dynamic and highly interconnected. When one system talks to another, certain aspects of it may make it a potential target for cybercriminals. With organizations increasingly opening their digital doors to third-party vendors, clients, and partners, your organization's cybersecurity bears the burden of this sprawling network. The critical question that many are neglecting is: What is third-party risk?

The term 'third-party risk' refers to the potential threats arising from working with third-party vendors and affiliates, especially when they have access to your company's sensitive data or your network. The cybersecurity environment is plagued with an increasing array of potential third-party threats such as compromised software, infiltration through shared platforms, or compromised vendor data. Acknowledging and understanding these risks is critical for firms hoping to protect their reputation, financial assets, and customer data.

Why is There a Rise in Third-Party Cyber Risks?

With the surge of business globalization and the expanding digital landscape, companies increasingly rely on third-party vendors for various services. For example, organizations may employ third-party providers for payroll, data storage, IT services, or customer support. These third-party services and outsourced processes lead to shared systems, management tools, and data, which could potentially open a Pandora's box of cyber threats. Additionally, many organizations may neglect considering third parties in their cyber risk assessments, which may increase the risk even more.

Types of Third-Party Cyber Risks

Understanding what is third-party risk in terms of its various types can enable firms to implement effective risk management strategies. The cyber threats can broadly be grouped into three types: operations, reputational, and financial.

1. Operational: This type of risk can cause a disruption or degradation in the services provided by the third party.
2. Reputational: If a third-party vendor suffers a cybersecurity incident, it could damage your organization's reputation. The compromise of customer data from a third-party provider may lead customers to question the company's security.
3. Financial: Cyber-attacks or data breaches can result in direct financial implications through fines, lawsuits, or monetary loss due to fraud.

Assessing Third-Party Cybersecurity Risks

Organizations should employ a robust system for assessing and monitoring third-party vendors. Here are some steps to consider:

• Identify all third party vendors and affiliates that interact with your network or sensitive data.
• Perform a risk assessment of each third-party based on the nature of the interaction and the data they have access to.
• Ensure that all third-parties are compliant with your organization's cybersecurity standards or other relevant standards.
• Regularly reassess third-party risks as business relationships evolve or the cybersecurity landscape changes.

Preventing Third-Party Cyber Risks

Preventing third-party cyber risks requires a proactive approach and a comprehensive cybersecurity plan. Here are essential strategies for preventing third-party cyber risks:

• Establish Strict Vendor Security Standards: Instead of assuming third-party vendors are secure, set the bar by defining your security standards and expectations for all vendors you work with.
• Regular Vendor Audits: Regularly perform audits of all third-parties to ensure that they are maintaining the required security standards.
• Continuous Monitoring and Improvements: Continually monitor your third-party cybersecurity measures and regularly update your third-party risk management practices based on changing threats and business needs.

In conclusion, the unforeseen risk residing in third-party relationships is a critical component of cyber risk management that many companies still overlook. It’s crucial to understand 'what is third-party risk' and to take the necessary steps to mitigate these risks. Establishing a comprehensive third-party risk management plan is not only a budding best practice but is becoming an absolute necessity for companies of all sizes in the current digital landscape.