How to conduct cyber due diligence to protect your organization

Would you guess that 82% of companies give their third parties access to all cloud data? While third parties may need that data to be valuable partners, this level of access also introduces many potentially costly risks. Cyber due diligence helps organizations ensure that they only go into business with trusted partners, thereby reducing risks down the line. 

While risks are a part of doing business, organizations exposed to risk can mitigate them. An effective due diligence program protects organizations from the start and reduces the liability that can come with third-party and fourth-party relationships.

What Is Cyber Due Diligence?

Cyber due diligence, also called cybersecurity due diligence, is the process of assessing, monitoring and mitigating risks within a network, particularly those tied to third-party vendors.

The cyber due diligence process occurs before an organization finalizes a relationship with a new third party or completes a merger or acquisition. During third-party and M&A cyber due diligence, an organization will collect information about the potential new partner and its existing cybersecurity infrastructure. This information becomes the basis for the relationship because an organization can either decide not to move forward or move forward with a complete understanding of the risks involved.

Suppose an organization does decide to form a partnership with a third party or complete a merger or acquisition. In that case, it’ll start the relationship by mitigating any risks uncovered during due diligence.

Why Is Cyber Due Diligence Important?

Cyber due diligence is important because it protects organizations from risks — risks that can become incredibly costly if left unchecked. A recent report from IBM and the Ponemon Institute found that the average cost of a data breach reached $4.35 million in 2022, which marks a 2.6% increase from 2021.

Any time an organization takes action to address risk, it’s protecting itself from potential financial costs and far-reaching reputational impacts. Cyber due diligence is one of the best ways organizations can understand and mitigate their network’s many risks. It’s also important in ESG and compliance since due diligence helps organizations maintain transparent and ethical practices.

Cyber Due Diligence Checklist

Cyber due diligence is essential, but it isn’t always easy. Organizations need thorough and well-documented procedures for how they’re going to assess potential partners or evaluate m&a cybersecurity.

To complete effective due diligence, organizations should:

1. Create a Risk Profile: During this step, organizations will analyze the potential partner, paying special attention to that partner’s IT risk landscape. This includes how complex the third party is, any third parties they work with, any existing controls and how effective those controls are.
2. Complete an Inventory: The risk profile can then inform an asset inventory, which reflects any hardware and software the third party uses and the security protocols they have in place for each asset. This inventory can help organizations visualize which assets may be the most vulnerable to cyber-attacks.
3. Assess the Risk-Management Program: This will help organizations understand if the potential third party is aware of and responding to risks they already face. Organizations should review incident response plans and disaster recovery plans and evaluate how effective those plans are at mitigating risk.
4. Analyze Technology Needs: If the third party or target company already has its own tech stack, this step involves identifying how that technology will integrate with the technology and systems the organization uses.
5. Define Levels of Access: Different third parties need access to different data. While it might be tempting to give them full access to company systems, it’s important to only give third parties the level of access they need to effectively fulfill their duties. This step involves identifying what that level of access is, and then granting that access through appropriate security protocols.
6. Monitor Risks: The work isn’t over once the third-party relationship begins or the merger or acquisition is complete. Monitoring is the continuation of effective cyber due diligence, bringing cybersecurity principles into everything that happens within the network and the third-party relationship.

Protect Your Organization With Risk-Based Due Diligence

Regular cyber due diligence matters. It can make the difference between protecting your organization and leaving the organization open to costly breaches. Having an effective due diligence program is an important way to practice good governance, attract investors, reassure clients and promote the importance of secure, ethical operations.

Download our step-by-step guide to risk-based due diligence for five actionable steps to implementing a due diligence program within your own organization.