What is Third-Party vs. Fourth-Party Risk? And How to Manage Both

A third-party cyber risk assessment is now a key pillar of any cybersecurity strategy, but what about fourth parties?

Because of the interconnectedness of today’s digital supply chain, fourth-party vendors pose a significant risk to your organization’s security posture.

But what is third-party vs fourth-party risk and how can you efficiently manage both? Let’s look at the difference and how you can factor both into your cyber risk management strategy.

What is third-party risk?

Third parties are vendors, suppliers, or partners that your organization depends on to execute its business strategy.

Often these parties are directly connected to your network or have connected software that resides on your network. Examples of potentially risky third-party vendors include:

  • Software companies, such as cloud service providers and IT system monitoring vendors.
  • Critical business vendors, including accounting, payroll, and HR firms.

Whatever the relationship, these companies may have access to your operations, including potentially sensitive data – and that introduces risk.

If a third-party fails to maintain the same high security standards as your organization, any vulnerabilities on their side could provide a conduit for threat actors to perpetrate supply chain hacks. For example, cyber criminals often plant malware on an IT vendor’s software before it is pushed out to customers (as was the case with the 2020 SolarWinds hack).

The impact of these hacks is huge and can include downtime, investigation costs, regulatory fines, and reputational damage. This is why you need a comprehensive third-party risk management (TPRM) solution that helps you continuously monitor, assess, and remediate risk efficiently and expeditiously.

What is fourth-party risk?

Fourth parties represent a huge ecosystem that encompasses your vendor’s vendors or any third-party organization that connects to their network and business operations.

This extended, complex, and invisible web of interconnected business relationships is a significant threat to your organization. Without insight into risks lurking across this ecosystem, your organization is exposed.

For example, if a vendor ceases operations because of a security incident affecting one of their critical vendors – your business is also impacted. Likewise, if a fourth-party vendor is part of a connected digital supply chain and has access to your sensitive data, any incident could compromise that data and expose you to regulatory, operational, and reputational risk.
 

How to defend against fourth-party risk

Fourth-party risk management is challenging and traditionally has involved close collaboration with your vendors. 

For example, very few companies maintain an inventory of their fourth parties. Instead, they rely on third parties to perform due diligence on these companies. But enforcing and validating the measures your vendors take to mitigate any risk that could impact you is notoriously difficult.

Fortunately, BitSight for Fourth-Party Risk Management can help you overcome the challenge of fourth-party risk management in six key areas: 

  1. Identify fourth-party connections: BitSight automatically identifies vendor connections with other organizations and potentially risky relationships.
  2. Identify product connections: Easily discover the fourth-party products and services your third-party network is most dependent on.
  3. Discover a fourth-party’s security posture: See each fourth-party’s security rating for a quick view of concentrated risk.
  4. Get alerted to new and pressing risks: Continuously monitor your extended supply chain and receive alerts if a security incident occurs that may affect you.
  5. View dashboard-based reports: Get a centralized summary of fourth-party security incidents and easily report on fourth-party risk to stakeholders.
  6. Validate your vendors’ risk reduction strategies: Ensure your vendors are following infosec best practices to reduce risk in their vendor portfolio.

With these insights, it becomes much easier to manage the risk surface of your vendor supply chain and, if necessary, diversify your exposure to risky service providers.

Learn more about third-party vs. fourth-party risk management, and how new enhancements in the Bitsight platform can help you get ahead of evolving risk in this hidden ecosystem.

5 tips for third party risk ebook

This ebook contains five actionable steps that will put you well on your way to establishing an effective third-party risk management (TPRM) program. 

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