The role of third-party risk management in business continuity

Introduction

In an ever more globalised and interlinked commercial landscape, maintaining operational continuity under all conditions has become a vital concern for organisations around the globe. This imperative gave rise to the field of Business Continuity Management (BCM).

BCM represents a forward-thinking strategy that includes the development, execution, and ongoing enhancement of plans, tactics, and systems to bolster an organisation's resilience to business interruptions. It provides an essential framework for managing predictable issues, such as scheduled IT maintenance, and unpredictable occurrences like natural calamities, cyber-attacks, or a global health crisis. The core aim of BCM is to ensure that pivotal functions persist and normal operations are swiftly restored in the wake of such disruptions.

The intricacies of managing business functions have surged in the current era, marked by intricate supply chain dependencies, cloud computing, and outsourcing. An individual organisation may depend on a vast array of third-party vendors for diverse products, services, and solutions. Although these affiliations yield considerable benefits in terms of cost efficiencies, specialist expertise, and operational effectiveness, they also introduce a new spectrum of risks – the third-party risks.

Third-party risk encapsulates any potential hazards that stem from entrusting functions or services to external parties, including suppliers, vendors, and service providers. These hazards can have far-reaching impacts, potentially precipitating significant financial losses, reputational damage, and regulatory non-compliance.

So, how do third-party risks intersect with business continuity management? What role do third-party risk management tools play in assuring uninterrupted business operations? We shall delve into these queries and more within this discourse.

Understanding third-party risk

In the modern interconnected commercial realm, enterprises depend on a multifaceted network of external parties, commonly referred to as third parties. These include suppliers, contractors, IT service providers, amongst others. This reliance introduces what is termed as third-party risk.

Third-party risk is the potential peril associated with outsourcing any business function to an outside entity. This peril can take various forms, such as financial, operational, reputational, regulatory, or cybersecurity risks.

Let us examine some salient instances:

• SolarWinds Hack (2020): A supply chain assault where hackers infiltrated the software firm SolarWinds, serving numerous governmental bodies and top corporations. Malicious code was inserted into a software update, then disseminated to SolarWinds' clients, granting attackers access to the networks of these entities, resulting in considerable disruptions and data breaches.
• Ever Given Suez Canal Blockage (2021): A colossal cargo ship became lodged in the Suez Canal, a pivotal global shipping route. This led to substantial trade interruptions, affecting countless ships and highlighting the fragility of global supply chains to unforeseen blockages.
• Colonial Pipeline Ransomware Attack (2021): A cybercriminal collective, DarkSide, targeted Colonial Pipeline, a significant fuel pipeline in the USA. This compelled the firm to halt its operations, sparking fuel scarcities and price hikes, underscoring the potential for third-party cyber assaults to disrupt key infrastructure.
• Kaseya Ransomware Attack (2021): Kaseya, an IT software provider, suffered a ransomware attack that extended to its clients, causing widespread business disruptions.
• JBS Foods Ransomware Attack (2021): One of the largest global meat processors, JBS Foods, experienced a ransomware attack that forced shutdowns across Australia and North America, disrupting the worldwide meat supply chain.
• Attack on Microsoft Exchange Server (2021): A state-affiliated group from China, Hafnium, exploited flaws in Microsoft Exchange Server, accessing emails and planting malware, affecting thousands of organisations worldwide.

Neglecting to manage third-party risks could result in hefty financial losses, regulatory fines, contractual penalties, reputation harm, and operational setbacks that threaten a company's existence. Therefore, grasping and managing these risks is crucial.

The convergence of BCM and third-party risk

The modern business landscape is characterised by a high degree of interconnectedness, with third-party relationships integral to many organisations' operations. While this has enabled businesses to scale, specialise, and innovate, it has also created a new layer of vulnerability that can critically impact business continuity.

Understanding this intersection begins with recognising that any disruption to a third-party service provider can echo into your operations. If, for example, a software vendor faces a cybersecurity breach or a key supplier shuts down due to unforeseen circumstances, the ripple effect can disrupt your organisation's functions that rely on these services. Thus, third-party risk and business continuity are closely intertwined.

A key example of this intersection is the SolarWinds cyberattack in 2020. By exploiting vulnerabilities in SolarWinds' Orion software, hackers could gain unauthorised access to the systems of numerous organisations that used the software. The fallout from this attack impacted businesses across sectors, causing significant operational disruptions and demonstrating how third-party risks can threaten business continuity.

Similarly, the COVID-19 pandemic exemplified how third-party risks can disrupt supply chains and business continuity. As lockdown measures were implemented worldwide, many businesses experienced significant disruptions due to closures or reduced capacity at third-party suppliers and service providers. This unprecedented global event underscored the critical need for robust third-party risk management strategies to ensure business continuity.

As we can see from these examples, the potential for third-party disruptions requires organisations to adopt a proactive approach to manage such risks. With third-party relationships' growing complexity and scale, managing these risks manually or through traditional methods can be daunting and inefficient.

Conclusion

As explored throughout this blog post, the modern business environment, characterised by its intricate web of third-party relationships, presents opportunities and challenges. While these relationships can drive efficiency, innovation, and growth, they also introduce an element of risk that, if not properly managed, can disrupt business continuity and threaten an organisation's survival.