Quantifying Third Party Cyber Risk
In today’s digital age, quantifying third party cyber risk is critical. Organisations of all sizes rely on third parties to provide a variety of services. From cloud computing and data storage to payment processing and customer support. While these partnerships can bring significant benefits, they also introduce cyber risk to an organisation. A data breach or cyber attack that targets one of your third parties can expose sensitive data or disrupt business operations. Leading to reputational damage, financial losses, and regulatory penalties. Therefore, it is crucial for organisations to effectively quantify and manage third party cyber risk.
What is third party cyber risk?
Third party cyber risk refers to the potential vulnerabilities and threats that arise from an organisation’s use of external service providers and partners. These risks can come in various forms, including:
- Data breaches
- Unauthorised access to systems
- Ransomware attacks, and
- Supply chain attacks
Third party cyber risk can also include the risk of the third party failing to meet regulatory or compliance requirements, such as those related to data privacy and security.
Why is it important to quantify third party cyber risk?
Quantifying third party cyber risk allows organisations to prioritise their risk management efforts and allocate resources appropriately. By understanding the potential impact and likelihood of a cyber incident occurring, organisations can make informed decisions about which third parties to work with and what controls to put in place.
Quantifying third party cyber risk also helps organisations to communicate the risks to stakeholders, such as board members, shareholders, and regulators. This can be particularly important for organisations that are required to report on their cyber risk management efforts, such as publicly traded companies or those subject to industry-specific regulations.
How to quantify third party cyber risk
There are several approaches organisations can take to quantify third party cyber risk. Some common methods include:
- Risk assessment: Conducting a risk assessment is a systematic process that helps organisations to identify, evaluate, and prioritise their third party cyber risks. This can involve gathering information about the third party’s security controls, incident history, and regulatory compliance, and using this information to calculate the potential impact and likelihood of a cyber incident occurring.
- Risk scoring: Risk scoring involves assigning a numerical value to a third party’s cyber risk based on various risk factors. This can help organisations to quickly compare the risks of different third parties and identify those that pose the greatest risk.
- Cyber insurance: Many organisations purchase cyber insurance to help protect against the financial impact of a cyber incident. The cost of cyber insurance can be used as a proxy for the organisation’s third party cyber risk, as higher premiums reflect a higher perceived risk.
At Elasticito, we prefer to use automation tools to assist with the assessment and monitoring of cyber risk. Tools like Black Kite use the FAIR Model for quantifying cyber risk, but also for automating risk assessments and risk scoring. The FAIR Model is a widely adopted open standard for calculating and understanding the probable financial impact of events like a data breach.
Source: Black Kite
Black Kite has implemented an impressive interpretation of using the FAIR Model at scale for any third party. This turns a usually highly complex and time consuming exercise, into something that can be applied immediately. It is accessible any time you want to assess the cyber risk posture of a potential or existing third party that you share data with.
Conclusion
Quantifying third party cyber risk is an essential part of any organisation’s cyber risk management strategy. By understanding the potential impact and likelihood of a cyber incident occurring, organisations can make informed decisions about which third parties to work with and what controls to put in place. This helps to protect against financial losses, reputational damage, and regulatory penalties. It also ensures that the organisation is able to effectively manage and communicate its third party cyber risks.
If you are looking at quantifying third party cyber risk in your business, get in touch with the Elasticito team. We are domain specialists in this field.