With cyber attacks and data security threats looming at insecure access points, the increased scrutiny of regulators and the focused attention of boards of directors, the outsourcing of critical services to third parties requires a robust vendor risk management program and stringent oversight – now more than ever. Yet the results of a new study suggest that many companies may be underperforming in these areas.
Organizations must make improvements to their risk management programs in order to keep pace with the latest risks and challenges, according to a new study by the Shared Assessments Program and Protiviti, which examined information from more than 450 C-suite executives, risk management and audit professionals.
Survey respondents were presented with eight categories of vendor risk management. For each component within the eight categories, respondents were asked to rate its maturity level as it applies to their organization on a maturity scale of 1 (lowest) to 5 (highest):
Initially, vendor risk management capabilities in organizations appear to be stagnating. Scores in half of the categories did not change from year to year, and the slight declines (-0.1) in the four other categories are not significant variations.
However, these flat results do not necessarily mean that no progress has been made with regard to third-party vendor risk management. During the one-year period in between the 2014 and 2015 surveys, there was an epidemic of cybersecurity breaches, the February 2014 release of the NIST Cybersecurity Framework, and more oversight of IT security risk programs in general by both boards of directors and regulators.
This increased regulatory focus on third-party risks means that organizations are now more aware of their own program’s strengths and weaknesses, particularly at the C-suite and board level. With greater clarity about what is required to minimize and mitigate cybersecurity risks, many respondents likely rated their capabilities lower even in the face of process improvements in their firms, and may also be setting a higher bar for what they deem to be mature levels of vendor risk management.
“The increasing frequency and magnitude of cybersecurity breaches, along with recent and forthcoming regulatory actions, make it imperative that vendor risk management programs make a significant leap forward. This change requires fundamental alterations to strategies, processes and organizational culture,” said Rocco Grillo, a managing director with Protiviti and the firm’s global leader for incident response and forensic investigations. “The good news is that there is greater demand for building more robust vendor risk management programs. This issue is more frequently a part of the agenda for boards of directors, who are regularly seeking assurance from management that the appropriate steps are being taken to combat vendor risk.”
Vendor risk management programs require more substantive advances. The overall maturity rating for program governance in this year’s survey (2.7 on a 5-point scale – below the “fully defined and established” maturity level) should serve as a wake-up call that deeper changes are needed that reach into organizational culture and individual behavior, especially for financial institutions that are striving to satisfy the U.S. “Getting to Strong” regulatory mantra.
Vendor risk management programs within financial services organizations are relatively more mature compared to companies in insurance, healthcare and other industries. The 2015 survey results indicate that financial services firms continue to rank ahead of other industries with regard to their vendor risk management programs most notably in Program Governance, Vendor Risk Identification and Analysis, and Communication and Information Sharing. Financial Services organizations score on average more than a point higher in these categories. Perhaps most notable is the finding that the insurance and healthcare industries continue to lag behind financial institutions in fortifying their vendor risk management capabilities, considering the sensitivity of their data.
Policies, standards and procedures and contract management and criteria represent the most advanced components of current vendor risk management programs. These areas are ranked highest in terms of overall maturity among the eight program areas assessed in the survey. These two program characteristics are fundamental building blocks that can lay the groundwork for a more mature vendor risk management capability.
The complete report is available here.