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!

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Integration: Klingons vs. Elves

Integration is largely dismissed by those interested in purchasing software these days. Quotes like “don’t worry, we’ll make it happen” or “oh, it’ll all come together in the end” are heard in meetings as everyone rushes to sign the vendor’s contracts before the end of the fiscal year. Unfortunately, six months later the same people are saying “the vendors weren’t upfront in their demos with us!” and “I don’t understand what’s so difficult about all this, why can’t they just make it work!”.

If you’ve ever integrated different systems together, you know that integration is where the rubber meets the road so to speak. From a technical perspective, I’m not a fan of bolting two (or more) different systems onto each other and forcing them to talk to one another. However, many times it has to be done and if that’s the case, it needs to be planned accordingly. The best way I can explain an integration effort is this:

System 1, a.k.a. “Worf”: A Klingon who hails from the planet Kronos. Worf has been characterized as a “swarthy humanoid”, doesn’t like cold weather and enjoys a bloody battle. Speaks Klingon.

System 2 a.k.a. “Enel”: An Elf who hails from Valinor in Middle-earth. Wise and immortal, Enel is a skilled hunter and has pledged to preserve the world. Speaks Elvish.

Worf and Enel couldn’t be more different. In fact, they’re completely different in every way imaginable. So, how the heck do you make them talk to one another? Hire an interpreter (i.e. 3rd party software tool) to assist in the language barrier? What similarities does Worf have that Enel can understand (i.e. temporary tables)? What symbol of understanding can be passed between them (i.e. Web Services or APIs)?

To ensure that the Klingons don’t invade the Elven continent of Middle-earth and destroy an ancient civilization, it’s important that you get your Supreme Council in a room (i.e. project stakeholders) along with your Trusted Advisors (i.e. IT architects, etc.) and determine the best way (or ways) for Worf and Enel to communicate with one another before you join their people together as a nation. Otherwise, prepare for Worf’s battle cruiser to enter Middle-earth airspace and it won’t be pretty.

Preventing a Cloud Data Breach

Breach-WordsMany of you reading this have not (thankfully) experienced a cloud data breach with your technology vendors. However, a cloud data breach is always on the forefront as more businesses embrace cloud technology.

What are the chances that your organization could have a cloud data breach? According to research performed by the Ponemon Institute most companies will have small data breaches rather than large data breaches [1]. Does this mean you can breathe easy? Not so fast. For those of you in the retail and public sectors, your likelihood of experiencing a data breach is higher than those of you in the transportation, communications or even financial sectors [1]. However, each sector is impacted and the average cost of managing a data breach per organization is approximately $5.9 million with the average cost spent per breached record at $201 [1]. 41% of the respondents surveyed in the Ponemon Institute’s research said that malicious or criminal attacks were responsible for their data breach and 31% said that employee negligence was the root cause [1].

With those facts in mind, how do you prevent a cloud data breach?  The Ponemon Institute’s research states that “the most profitable investments companies can make seem to be an incident response plan, a strong security posture, the involvement of business continuity management and the appointment of a CISO with enterprise-wide responsibility” [1]. In addition to this, asking potential (and current) vendors about their cloud technology is also key. This is a nice article written by Julie Lopez that focuses on the right questions businesses should ask their technology vendors.  Her article mainly focuses on health care, but makes a lot of great points that everyone should read regarding vendor management. Speed to market is critical these days and cloud technology gives organizations this benefit. However, this speed to market mentality must be tempered with a sound risk mitigation strategy in order to reduce the chances of a costly data breach.

References

[1] Ponemon Institute. (2014, May). 2014 Cost of Data Breach Study: United States. Retrieved from http://essextec.com/sites/default/files/2014%20Cost%20of%20Data%20Breach%20Study.PDF

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.