The Importance of Vendor Risk Assessments

When buying a car, do you rush right out to the dealership and purchase the first car you find online? Or, do you perform your research and kick the tires, taking it for a test drive? Most of us will conduct our “due diligence” before buying a car and this includes researching the types of cars we’d like to buy, taking several test drives and checking out the mechanics of the car.  This same due diligence should be done for each of the vendors that you plan to use within your company in the form of a vendor risk assessment, regardless of their size. In fact, current vendors within your company should be reviewed every one to two years. For example, did someone review their financials? Do you know if you can get your data back if they go bankrupt? Do you know if they’re governed by laws outside of your country?

In larger companies, vendor risk assessments are typically performed by risk analysts, technology auditors, and information security folks, working in conjunction with the vendor management and procurement departments. In smaller companies, there may be a one or two person team responsible for conducting the vendor risk assessment. In many startup organizations, vendor risk assessments can be an afterthought. If you don’t perform a vendor risk assessment on your vendors today, take a look at this Risk Assessment Toolkit from the State of California’s Department of Technology, Information Security Office to get you started. There are many other sample templates and resources available online, as well. This is a great video on assessing technology vendor risk and security from Monte Ratzlaff, Security Manager, at UC Davis Health System, as he presents “Vendor Risks: Evaluating the Security of New Technology”.

At this point, some of you may think, “well, I don’t need a risk assessment on ____ vendor (insert name of vendor), they’re huge!”. Right? Wrong. I’ve worked with technology audit professionals on the review of hundreds (if not thousands) of technology vendors and yes, some of those “huge” vendors can have red flags for you and your company. Whether it’s the fact that they’re in the middle of a merger, they’re outsourcing their development team, or they don’t have enough insurance to cover you in the event of a breach, the scenarios can vary, depending upon what your company considers a risk and how that risk is categorized. If you need a tool to understand risks associated with the project you’re considering, take a look at this post by BrightHub PM, it has a lot of great info on creating a risk matrix and how to use it.

In the end, just think of a vendor risk assessment as a way to kick the tires of the prospective vendor before buying a lemon whose carburetor is going to explode once you drive it off the lot. If you’re interested in performing a proof of concept or proof of technology with the vendor once they pass the vendor risk assessment, check out a former post that I wrote on this topic and good luck!

Are You Using “Test” Data in the Cloud?

CloudSecurityKeyhole_468Yes, you read that correctly. The word test is in quotation marks, as in “is it really test data that you have in the vendor’s cloud?”. Astonishingly enough, at least 85% of financial institutions are using live data in their test environments [1]. Could this be you and are you protecting your organization against a data breach effectively?

When a cloud technology vendor makes an offhand remark like, “yeah, we can create a test environment for you and load your test data into the cloud while we work through a Non-Disclosure or Proof of Concept agreement with your legal team”, be afraid. Be very afraid.

Now, I’m not knocking the technology vendors. In fact, to them this is a natural part of the engagement. What you have to be aware of is whether your company’s test data is truly “test data” or not. For example, if you’re in the financial or healthcare sectors where a data breach could expose Personal Health Information (PHI) or Personally Identifiable Information (PII), you should understand your test data thoroughly.

Once you understand your test data, think about putting together a more robust agreement with the vendor besides a Non-Disclosure or Proof of Concept agreement. Non-Disclosure and Proof of Concept agreements typically do not contain the language to protect your company against a data breach. A Master Services Agreement or Subscription Services Agreement should be reviewed by your legal or contracts team to determine if your company will be protected while using the vendor’s cloud if there is a breach with regard to the test data.

Karen Hsu of Informatica explains that “because data stored in a cloud-based ‘sandbox’ environment for testing purposes is vulnerable, it should be masked to protect sensitive information” [2]. She recommends using an automated masking tool to assist with the protection of your data. Regardless of what tools you use, your “test” data should be understood before loading any of it into a vendor’s cloud environment.

References:

[1] Dark Reading News. (2010, March). Live Data In Test Environments Is Alive And Well — And Dangerous. Retrieved from http://www.darkreading.com/risk/live-data-in-test-environments-is-alive-and-well—-and-dangerous/d/d-id/1133220?

[2] Hsu, Karen. (2013, March). Masking Test Data in the Cloud. Retrieved from http://www.bankinfosecurity.com/interviews/masking-test-data-in-cloud-i-1822

Unlimited Liability for Breach of Confidentiality in SaaS / Cloud Contracts

I recently opened up a contact form for readers if they had any questions about technology vendor management and I received this great question from a reader. It does step into the legal realm of contract management and since I’m not an attorney, please understand that my below response isn’t legal advice, it’s based on years of working with technology vendors and technology contracts.

Unlimited liability for breach of confidentiality: Is it practical to expect SaaS suppliers to accept that risk in this era of very public security breaches?  

It’s not unreasonable or impractical to include this type of language in your SaaS (Software as a Service) / Cloud contract. From my experience, including unlimited liability for breach of confidentiality in your vendor’s contract hinges on one thing: your data.  What type of data do you want to remain confidential?  Is there financial, corporate information, protected health information (PHI), or personally identifiable information (PII) being stored within the SaaS / Cloud product?  Where will the confidential data reside? Offshore, onshore, nearshore, offsite, onsite? If it’s a true cloud provider, your data will be sliced and diced on servers across the globe. Do you have the option of a private or hybrid cloud with this vendor? Will there be any vendor resources performing patch / breakfix / maintenance work to the product that will see this confidential data? If so, where are they located and what data would they see as they performed this work?

In addition to the initial research regarding the type of confidential data to be stored, it’s important to perform a complete risk assessment of the project and the vendor’s products in the beginning of the purchasing engagement (preferably in the sourcing phase, not the contracting phase). My most recent post digs more into vendor vetting and it includes a great video from Monte Ratzlaff, Security Manager, at the UC Davis Health System, who elaborates on the issue of vendor risk.

From a contractual standpoint, vendors typically take issue with unlimited liability of any kind. That’s not to say that you can’t add the unlimited liability for breach of confidentiality language in your contract for the first draft and see what the vendor comes back with as far as redlines. Vendor pushback on unlimited liability is to be expected and I would recommend finding a back fence position if they don’t accept it. This back fence position could be anything from including a monetary cap in the contract (i.e. the vendor will pay $1 million related to the breach and then you’re responsible for any fees over the cap) to other remedies that would effectively make your company whole in the case of a breach. If you’re in an industry such as finance or healthcare, a public breach of confidential information could have severe ramifications for your business and if the monetary cap is too low, your company will be picking up the tab for any additional fines past the amount of the initial cap.

Overall, I would say that it’s perfectly reasonable to include unlimited liability for breach of confidentiality in your company’s SaaS / Cloud contracts depending upon the type of confidential data to be stored and your line of business. However, keep in mind that many vendors may take issue with it, and if this is the case, be prepared with a back fence position that will protect your company.