By 2025, third-party security risks are responsible for over 60% of data breaches and 41% of ransomware attacks. Businesses relying on cloud vendors face increasing challenges as attackers exploit misconfigurations, weak access controls, and API vulnerabilities. Here’s how organizations can tackle these risks:
- Vendor Risk Assessment: Identify, evaluate, and continuously monitor third-party vulnerabilities.
- Identity and Access Management (IAM): Enforce strict access controls, limit permissions, and adopt zero-trust principles.
- Real-Time Monitoring: Use automated tools and security rating systems to track vendor security in real time.
- AI and Automation: Streamline vendor assessments, prioritize risks, and predict threats using AI-driven tools.
- Strong Contracts: Include security clauses, liability terms, and breach notification protocols in vendor agreements.
Key takeaway: Proactively managing vendor security with these strategies reduces breaches, ensures compliance, and strengthens cloud systems. Businesses must move beyond annual reviews and adopt continuous, automated risk management to keep up with evolving threats.
Managing Cloud Security and Third Party Risk Management
Current Vendor Security Challenges in Cloud Environments
The vendor security landscape in 2025 is fraught with challenges. In 2024 alone, daily cloud alerts increased fivefold, while high-severity alerts skyrocketed by 235%. This surge highlights how attackers are zeroing in on cloud infrastructure, exploiting vulnerabilities within the ever-expanding vendor ecosystems.
Third-party breaches have become a growing concern, accounting for 15% of all breaches in 2024 – a sharp 68% rise compared to the previous year. Sectors like retail and hospitality are particularly vulnerable, with 52.4% of their breaches tied to third-party vendors. Alarmingly, 41.4% of ransomware attacks now originate from these third-party access points, underscoring how attackers use vendor relationships to their advantage.
"Threat actors are prioritizing third-party access for its scalability. Our research shows ransomware groups and state-sponsored attackers increasingly leveraging supply chains as entry points. To stay ahead of these threats, security leaders must move from periodic vendor reviews to real-time monitoring to contain these risks before they escalate throughout their supply chain."
– Ryan Sherstobitoff, SVP of SecurityScorecard‘s STRIKE Threat Research and Intelligence
One striking example is the Blue Yonder ransomware attack on November 21, 2024. This breach targeted a supply chain software provider, causing widespread disruptions. Starbucks experienced temporary failures in payroll and scheduling systems, while UK retailers faced significant inventory management issues. This incident illustrates how a single vendor compromise can ripple across industries, emphasizing the need for rigorous and continuous vendor risk assessments.
Common Third-Party Security Problems
The statistics surrounding breaches point to several recurring security flaws in vendor systems. A major issue lies in poor identity management and configuration practices. Compromised credentials remain the most common attack vector. According to Microsoft’s Digital Defense Report, over 600 million identity attacks occur every day, with 99% of them relying on password-based methods. Attackers often exploit these weaknesses to gain scalable access, allowing one vendor compromise to impact multiple organizations.
Misconfigurations are another frequent issue, often caused by human error, which creates exploitable vulnerabilities in vendor systems. Additionally, API vulnerabilities have become a critical concern. In 2023, 29% of all web attacks targeted APIs. As vendors increasingly depend on API integrations for service delivery and data sharing, these interfaces present attractive opportunities for attackers looking to access sensitive data or disrupt operations.
Phishing attacks are also evolving. AI-powered techniques now create highly convincing impersonations. In 2024, Microsoft observed a surge in phishing campaigns that leveraged legitimate file-hosting services like SharePoint, OneDrive, and Dropbox to steal identities. These attacks often target vendor employees who manage access to multiple client systems, making them valuable targets.
The shared responsibility model in cloud computing adds another layer of complexity. Many organizations struggle to clearly define where their security responsibilities end and their vendor’s begin, leaving gaps that attackers can exploit.
Multi-Cloud and Hybrid System Complications
The rise of multi-cloud and hybrid environments has further complicated security management. Today, 64% of organizations operate in hybrid-cloud setups, and 55% use multi-cloud architectures. Only 17% rely on a single-cloud environment, reflecting the shift toward more distributed systems.
This architectural complexity creates new challenges. Most organizations rely on at least five different security tools to protect their cloud infrastructure, with 55% reporting this level of tool diversity. Each tool introduces unique protocols and potential vulnerabilities, making the security landscape fragmented and harder to manage.
"Despite the obvious benefits of multi-cloud environments, such as improved flexibility, reduced vendor lock-in, and the ability to leverage best-of-breed services from different cloud providers, this approach comes with a critical caveat: such increased complexity directly translates to heightened security risks."
– Avi Shua, Chief Innovation Officer at Orca Security
The expansion of attack surfaces in multi-cloud environments is particularly concerning. Research shows that 9% of organizations have cross-cloud attack paths, while 31% face cross-account vulnerabilities. Managing data consistency and governance across multiple platforms becomes a significant challenge, as differing standards for data protection, backups, and access controls can create weak links.
Compliance management is another area of concern. In the past year, 37% of organizations failed a compliance audit due to cloud security issues. Identity and access management (IAM) across multiple platforms often leads to problems such as orphaned accounts, excessive permissions, and insufficient monitoring of privileged access.
The financial toll of these security challenges is staggering. Organizations face increased storage costs due to data duplication, higher licensing fees for security tools, and the need for specialized expertise to manage complex environments. The Change Healthcare ransomware attack, which exposed sensitive data for 190 million people, serves as a stark reminder of the potential scale and cost of vendor security failures.
How to Assess Cloud Vendor Security Risks
By 2025, an estimated 35.5% of data breaches will result from third-party compromises. Yet, despite this looming threat, a staggering 54% of organizations fail to properly vet their third-party vendors. This oversight leaves entire ecosystems vulnerable to targeted attacks.
To truly understand and mitigate these risks, organizations must go beyond surface-level questionnaires. A thorough vendor risk assessment involves evaluating a third party’s ability to meet your organization’s security standards across all connections – whether they are vendors, contractors, partners, or subsidiaries. The goal? To continuously identify, evaluate, and manage risks introduced by external entities throughout your supply chain.
Let’s break down a structured approach to assessing and addressing vendor risks.
Setting the Scope for Vendor Risk Assessment
The first step in an effective vendor risk assessment is establishing clear boundaries and objectives. Start by identifying all cloud assets and services tied to your organization. This includes infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), software-as-a-service (SaaS), and hybrid cloud setups. Many organizations are surprised by the sheer number of vendor relationships they uncover, making a comprehensive inventory a must.
Define your goals with input from key stakeholders. These goals should focus on ensuring compliance, protecting critical operations, and avoiding scope creep during the assessment process.
Next, establish risk criteria across several dimensions:
- Security risks: Think data breaches, unauthorized access, and system vulnerabilities.
- Compliance risks: Regulatory violations and audit failures.
- Operational risks: Service disruptions or performance issues.
- Vendor-specific risks: Financial instability or poor security practices.
- Privacy risks: Mishandling or improper protection of sensitive data.
With the growing complexity of cloud environments, this step is essential. Each additional vendor introduces new variables that could impact security.
Step-by-Step Vendor Risk Assessment Process
A systematic process can help you identify threats, evaluate risks, and create mitigation plans. Here’s how:
- Identify threats and vulnerabilities: Pinpoint potential risks specific to your cloud environment. Common threats include cyberattacks, data breaches, and insider threats. Vulnerabilities might arise from misconfigurations, DDoS susceptibility, or unauthorized access points. Leverage threat intelligence tools to uncover potential attack vectors in your vendor relationships. Incidents like SolarWinds and Kaseya highlight how attackers exploit software supply chains.
- Evaluate vendor security measures: Dig into the protections vendors have in place. Look at certifications like ISO 27001 and SOC 2, encryption protocols, and adherence to security best practices. Don’t just take their word for it – combine internal checks with external audits.
- Score risks: Use a risk matrix to prioritize based on impact and likelihood. For example, a vendor handling payment data with weak encryption would rank higher on the risk scale than a vendor with limited access to sensitive information. Historical breaches reinforce the importance of this step.
- Develop mitigation plans: Address high-risk issues directly, and monitor lower-risk items closely. Consider strategies like transferring risk through cyber insurance or outsourcing. If a vendor poses an unacceptable level of risk, it’s better to walk away.
Once these assessments are in place, implementing strong Identity and Access Management (IAM) practices becomes critical to enforce security controls.
Using Identity and Access Management (IAM) for Security
IAM plays a key role in managing vendor-related security risks. Start by enforcing robust authentication requirements for all vendor access points. For instance, the January 2024 Snowflake incident demonstrated how weak IAM controls – such as the lack of multi-factor authentication – can lead to unauthorized access and data exposure.
Here’s how to strengthen IAM practices:
- Granular access controls: Limit vendor permissions to only what’s necessary for their tasks. Regularly review access rights to remove orphaned accounts and excessive privileges, reducing the damage potential of compromised credentials.
- Continuous monitoring: Use automated tools to detect and respond to anomalies in privileged access.
- Adopt zero-trust principles: Treat all vendor access as untrusted, regardless of location or previous authorization. This approach emphasizes constant verification of access requests, minimizing risks like lateral movement in the event of a breach.
In cloud computing’s shared responsibility model, cloud providers handle the infrastructure, but your organization is accountable for managing user access and permissions. Clearly defined IAM policies clarify these boundaries, ensuring both parties understand their roles. By integrating IAM into your vendor risk management framework, you strengthen your overall cloud security strategy.
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Advanced Vendor Security Management Methods
Managing vendor security today requires more than just ticking boxes on a questionnaire or conducting annual reviews. Organizations need dynamic, forward-thinking strategies and tools to keep up with an ever-changing threat landscape.
Real-Time Monitoring and Security Rating Systems
Relying on outdated vendor assessments can leave organizations exposed to unseen risks. Real-time monitoring bridges this gap by continuously tracking vendor security statuses and sending alerts the moment threats arise. Security rating systems take it a step further, turning subjective evaluations into measurable scores that reflect a vendor’s cyber risk. These systems pull data from various sources to provide a clearer, more accurate picture of a vendor’s security posture.
Top-tier platforms offer real-time monitoring with detailed visualizations and in-depth risk assessments. These tools are particularly useful for businesses managing large-scale vendor networks, as they combine vendor profiling with compliance management features. By converting subjective assessments into actionable metrics, organizations can quickly identify high-risk vendors and act before a breach occurs.
Automation is the backbone of effective real-time monitoring. With hundreds or even thousands of vendors to oversee, automated systems can evaluate risks across the board and highlight urgent issues that need attention. This continuous vigilance lays the groundwork for the next step: strengthening contracts and audit practices.
Contract Security Requirements and Audit Practices
While technology plays a critical role, strong contracts are equally important for holding vendors accountable. Security and compliance clauses should be baked into agreements, requiring vendors to meet specific standards. These clauses should cover:
- Service Level Agreements (SLAs): Specify minimum security requirements, including how data is handled and systems are protected.
- Incident Reporting Protocols: Define clear timelines, communication channels, and details for breach notifications.
- Liability Clauses: Outline who is financially responsible in case of a vendor-related breach, protecting organizations from unexpected losses.
Regular audits are another essential layer of protection. Whether it’s penetration testing, compliance checks, or full security reviews conducted by third-party experts, audits provide a structured way to evaluate vendor performance. For high-risk vendors, annual reassessments are advisable, while less critical relationships may require less frequent reviews. Vendor scorecards can also be a valuable tool, tracking metrics like cybersecurity posture, regulatory compliance, and incident response capabilities over time.
Implementing Zero-Trust Security Models
A zero-trust security approach is the perfect complement to robust Identity and Access Management (IAM) practices. In today’s cloud-driven environments, where traditional network perimeters no longer apply, zero trust operates on the principle of "never trust, always verify". This model assumes that threats can come from both inside and outside the network, requiring continuous authentication and validation for every access request.
The numbers make a strong case for zero trust. Nearly half of organizations (47%) reported data breaches tied to third-party access in the past year. By 2025, Gartner predicts that 60% of enterprises will have adopted zero-trust solutions. Financially, the stakes are high – the average cost of a data breach is $4.35 million.
Key zero-trust practices include:
- Multi-Factor Authentication (MFA): MFA can block over 99.2% of account compromise attempts, making it a must-have for third-party users.
- Micro-Segmentation: This technique breaks networks into smaller, isolated segments, limiting attackers’ ability to move laterally and ensuring vendors only access the resources they need.
- Data-Centric Security: Protect sensitive information through encryption at rest and in transit, paired with Data Loss Prevention (DLP) tools to prevent unauthorized data leaks, even if vendor accounts are compromised.
Additionally, adopting a uniform security policy across cloud environments is crucial. Cloud Security Posture Management (CSPM) tools can help enforce consistent policies, ensuring a strong security framework across all platforms.
Using Automation and AI for Vendor Risk Management
Automation and AI are reshaping vendor risk management, taking it beyond traditional manual approaches. The shift is more than just about saving time – it’s about addressing the growing complexity of modern cloud environments and staying ahead in a world where cyber threats are constantly evolving.
Consider this: 87% of organizations have faced a third-party risk incident in the past three years. Yet, nearly half still rely on spreadsheets to manage these risks, and almost 50% only conduct risk assessments during onboarding. These outdated methods leave organizations vulnerable to significant gaps.
"AI is transforming TPRM from a backward-looking compliance activity into a forward-looking, predictive discipline." – Greg Smith, EY Global TPRM Leader
AI adoption is on the rise, with 63% of organizations using or piloting AI tools for vendor risk scoring, contract analysis, and ongoing monitoring. However, only 13% have fully integrated technology and automation into their third-party risk management (TPRM) programs.
AI-Powered Risk Assessment and Compliance Monitoring
AI is changing the game for risk assessments by moving from static, periodic evaluations to continuous, real-time monitoring. Instead of relying on annual reviews, AI analyzes ongoing data streams, combining external inputs with internal data for a more dynamic approach.
What makes AI so powerful here is its ability to handle massive amounts of data – something human analysts simply can’t do. AI can simulate scenarios, assess potential impacts, and even use Natural Language Processing (NLP) to interpret complex legal documents, pulling out key information to ensure compliance.
The efficiency gains are undeniable. AI automates repetitive tasks like data collection, initial risk assessments, and vendor onboarding, speeding up the entire process. It can even predict potential cyberattacks by analyzing patterns, allowing organizations to act before an incident occurs. This shift from reactive to predictive risk management is a game-changer.
AI also strengthens compliance efforts by generating timely reports that help meet regulatory requirements. With 69% of businesses considering AI essential for cybersecurity, its role in enhancing an organization’s security posture is clear.
Automated Vendor Inventory Systems
Managing vendor inventories manually is no longer practical, especially with the growing complexity of third-party relationships. Automated systems now provide real-time visibility and accuracy, addressing key challenges in vendor risk management.
These systems simplify vendor evaluation and onboarding, speed up risk assessments, and improve reporting and analytics. The vendor risk management market is projected to grow from $11.98 billion in 2024 to $21.59 billion by 2029, highlighting the increasing reliance on such tools.
Take UpGuard Vendor Risk as an example. Its vendor library helps organizations track and monitor the security posture of third parties. Vendors are categorized in a centralized system, making it easy to sort by tier, name, score, or custom labels.
One major advantage of these systems is their ability to handle vast numbers of vendors while maintaining organization throughout the vendor lifecycle. From onboarding to exit, these tools enable continuous monitoring with regular security assessments and updates. Although setting up such systems requires careful planning and accurate data mapping, the long-term benefits – like improved data quality and reporting – allow organizations to scale their vendor management programs without adding more staff.
AI-Based Security Issue Prioritization
When managing hundreds or even thousands of vendor relationships, prioritizing resources is critical. AI simplifies this by continuously monitoring vendor risk profiles and sending immediate alerts when significant changes occur.
AI evaluates multiple factors – such as data sensitivity, vendor access levels, security posture, recent threat intelligence, and historical incidents – to generate risk scores. These scores help organizations focus on key areas: selecting the right vendors, protecting their assets, and managing risks effectively.
The impact is clear. Sixty-one percent of CISOs believe AI could prevent over half of third-party breaches. This confidence stems from AI’s ability to rapidly analyze data, detect patterns, and flag anomalies. Its role in threat intelligence and predictive modeling makes it indispensable. AI-powered systems also monitor networks continuously, identifying early warning signs of potential threats and notifying response teams immediately.
Moreover, 70% of organizations see automating third-party assessments as a critical capability in their TPRM services. This allows them to manage growing vendor ecosystems without significantly increasing staff.
"An environment of lingering business uncertainty and cost pressures is creating an imperative for leaders to conduct third-party risk management in a more effective way. AI has proven to be a game changer." – Kapish Vanvaria, EY Global Risk Consulting Leader
As cyber threats grow and vendor ecosystems become increasingly complex, AI-driven automation is proving to be an essential tool for effective cloud risk management. This sets the stage for stronger, more proactive security practices, crucial for today’s ever-changing digital landscape.
Conclusion: Building Better Vendor Security in Cloud Systems
The world of cloud vendor security is evolving rapidly, and the stakes have never been higher. Gartner estimates that by 2025, 45% of organizations will face software supply chain attacks, underscoring the urgency of proactive risk management. This shift from reacting to threats to actively managing them is no longer optional – it’s essential for survival in today’s digital landscape.
Modern cloud systems require a thorough approach to vendor security that spans every stage of the relationship, from onboarding to offboarding. Gone are the days when annual reviews and spreadsheet-based tracking were enough. Organizations now need real-time monitoring and automated threat detection to stay ahead of potential risks.
Key Takeaways for Business and Tech Leaders
Securing vendor relationships starts with a solid foundation: maintaining a detailed inventory of vendor information, security protocols, compliance measures, and risk assessments. This data allows businesses to prioritize vendors based on their actual risk levels, considering both the sensitivity of the data they handle and the importance of their services.
Leading organizations are moving away from periodic assessments and adopting continuous monitoring systems. For example, companies that enforce rigorous onboarding processes and ongoing monitoring see fewer breaches tied to third-party vendors.
A Zero Trust approach – "never trust, always verify" – is crucial. By constantly verifying third-party controls before granting access, businesses can reduce risks. This is especially important given that over 80% of cyber incidents involve credential misuse.
"In nearly all cases, it is the user, not the cloud provider, who fails to manage the controls used to protect an organization’s data […]. Through 2025, 99% of cloud security failures will be the customer’s fault."
– Gartner
Clear contract management is another cornerstone of vendor security. Contracts and service agreements should outline specific security responsibilities, include performance metrics like uptime and response times, and require vendors to disclose their subcontractors and evaluate their security practices.
One healthcare provider’s strategy offers a practical example. By categorizing their cloud vendor as critical due to their access to protected health information (PHI), they conducted thorough risk assessments to ensure encryption and incident response readiness. They also strengthened access controls with a Zero Trust framework and implemented continuous monitoring for ransomware threats. These steps not only improved HIPAA compliance but also reduced data breach risks and earned greater patient trust.
These examples underline the importance of leveraging expert guidance to enhance vendor security practices.
How Fractional CTOs Help with Vendor Security
Fractional CTOs bring a unique combination of technical expertise and strategic insight to vendor security, making them an invaluable resource for organizations navigating cloud ecosystems. Their experience across industries equips them to identify emerging threats and implement proven security frameworks that internal teams might overlook.
These professionals excel in managing vendor relationships. They negotiate contracts and Service Level Agreements (SLAs) to ensure vendors are held accountable for security and service quality. Their impartial perspective often enables stricter security requirements and more objective vendor evaluations.
A seasoned fractional CTO’s "security-first" mindset is especially valuable during vendor assessments. They ensure third-party engagements meet stringent data protection standards and establish clear, enforceable expectations – covering everything from breach notification procedures to data handling protocols.
For small and mid-sized businesses, fractional CTOs offer access to high-level technical expertise without the financial burden of a full-time executive. They also play a key role in fostering a strong security culture, leading training sessions and awareness campaigns to keep teams informed and vigilant.
FAQs
What are the best strategies to manage third-party security risks in cloud environments?
Managing third-party security risks in cloud environments takes a well-thought-out and consistent strategy. A good starting point is implementing a Zero Trust Security Model. This approach continuously verifies every user and device, no matter where they are, ensuring that access is limited to verified and trusted entities only.
It’s also essential to perform regular security assessments of your cloud service providers (CSPs). This means checking that they meet industry standards and follow strong security practices. Dive into their policies, ask pointed security questions, and make sure you fully grasp the shared responsibility model – understanding what security measures fall on your organization versus the CSP.
To further safeguard your data, prioritize encryption for sensitive information, enforce strict access controls, and keep an up-to-date inventory of all third-party vendors. Regularly refreshing your security protocols and training employees on best practices can also go a long way in reducing vulnerabilities. These measures help protect your data while navigating the complexities of a cloud-based ecosystem.
How can AI and automation improve vendor risk assessments?
AI and automation are transforming vendor risk assessments, making them faster and more precise. These technologies handle tasks like automating data collection and analyzing massive datasets to spot risks in record time. On top of that, they offer intelligent risk scoring, helping organizations focus on the most pressing concerns first.
Another major advantage is continuous monitoring of vendor performance. This ensures that risks are addressed proactively, rather than reactively, keeping potential issues in check.
By predicting possible risks and speeding up the vendor onboarding process, AI and automation cut down on the time and effort traditionally needed for assessments. The result? Smarter decisions, streamlined risk management, and stronger security measures for vendor relationships.
Why is a zero-trust security model essential for securing cloud vendors?
A zero-trust security model is a must-have for securing cloud vendors. It revolves around one key idea: no user or device is automatically trusted, whether they’re inside or outside the network. Instead, every access request undergoes strict identity verification and constant monitoring.
One of the standout features of zero trust is its emphasis on least-privilege access. This means users and devices only get access to the resources they absolutely need, which significantly reduces the chances of unauthorized access to sensitive data or applications. In cloud environments – where traditional perimeter-based defenses often fall short – this approach proves especially effective. By adopting zero trust, organizations can safeguard distributed resources, reduce the risk of breaches, and stay aligned with security standards. It’s an essential strategy for tackling the challenges of modern cloud security.
