Effective risk management shields businesses from pricey third-party disruptions

Real-world examples of third-party impacts

Several recent high-profile incidents illustrate how disruptions involving third parties can have widespread impacts across multiple sectors.

The CrowdStrike outage in July 2024 caused an estimated AUD 8.4 Billion in direct losses for Fortune 500 companies, particularly healthcare and banking. The incident accentuated the need for TPRM to look inward, identifying concentration risk with cybersecurity vendor applications running on internal critical infrastructure and systems. In February 2024, a major healthcare organisation experienced a large-scale outage caused by a cybersecurity incident that disrupted critical services, including billing systems, insurance claims processing and prescription payments. This outage highlighted the vulnerabilities of key third-party vendors in healthcare infrastructure, underscoring the need for robust business continuity strategies, incident response plans and third-party risk management (TPRM) practices.

One of the world’s largest banks experienced a significant cyberattack in 2023 that led to widespread disruptions in global financial markets, impacting the bank’s access to critical systems and forcing them to settle U.S. Treasury trades manually and reroute financial transactions. The incident was just another example of the interconnectedness most organisations have today, and the potential impact to critical business services from third party disruptions.

These outages highlight the vulnerabilities of third-party vendors, underscoring the need for robust business continuity strategies, incident response plans and third-party risk management (TPRM) resiliency measures.

When third-parties falter, everyone feels it

When third-party vendors experience downtime or cybersecurity incidents, the impacts are felt across multiple levels:

• Operational delays: Essential business functions can be interrupted, leading to decreased productivity and financial losses.
• Financial implications: Downtime and breaches can result in hefty fines, lost revenue and increased costs associated with remediation.
• Regulatory exposure: Many industries, such as healthcare and finance, have strict compliance requirements. Third-party failures can lead to violations and legal consequences.
• Reputational damage: Customers and stakeholders lose trust when a business is unable to deliver services because of third-party failures. Rebuilding trust can take years and be costly.

Minimise business impact from a third-party disruption

Managing third-party risks and preparing for potential disruptions requires a proactive approach. Organisations need to build resilience not only within their own operations but also across their vendor ecosystem. Here are key steps to take to be prepared for a possible third-party failure:

• Develop a comprehensive third-party risk management program
  • Regularly evaluate third-party vendors based on their importance to operations and the sensitivity of the data they handle.
  • Conduct due diligence and ongoing risk assessments to ensure that third-party vendors are compliant with industry standards and have strong security protocols in place.
• Establish clear communication protocols
  • Create predefined communication pathways to respond to incidents affecting third-party vendors. This includes defining who will communicate with the vendor and how updates will be provided to internal teams and stakeholders.
  • Establish service level agreements (SLAs) that include expectations for response times and recovery in case of a disruption.
• Diversify your vendor base
  • Avoid becoming overly reliant on a single third-party provider for critical services. Work with multiple cloud service providers or use hybrid models to mitigate risks from vendor outages.
• Ensure contractual clauses for resilience
  • Include specific provisions in contracts with vendors that address incident response, business continuity, and disaster recovery plans. These should also include periodic testing and the ability to audit vendors’ resilience measures.
• Implement continuous monitoring and auditing
  • Employ continuous monitoring tools to track the performance and security of third-party vendors. Monitoring solutions can provide real-time alerts about potential vulnerabilities or disruptions within the third-party ecosystem.
• Have a response plan for third-party failures
  • Integrate third-party risk scenarios into all business continuity and disaster recovery plans. Conduct tabletop exercises that simulate disruptions caused by third-party vendors to ensure preparedness.
  • Ensure the organisation can function at a reduced capacity or implement backup solutions if a critical vendor becomes unavailable.

Third-party vendors play a critical role in today’s business landscape across the Asia-Pacific region, enabling efficiency and innovation. However, they also bring inherent risks that require proactive oversight. By acknowledging the strategic value of these partnerships and preparing for potential disruptions, organisations can strengthen resilience, safeguard their reputation, and ensure continuity—even in times of uncertainty. Establishing a strong TPRM framework, alongside a well-defined business continuity and incident response plan, is essential for mitigating the impact of vendor failures and maintaining operational stability in a rapidly evolving market.

To learn more about our technology resilience solutions, contact us or download our Guide to Business Continuity and Resilience.