Ticking time bombs
Those making the SaaS business case often overlook the compliance-driven risks and costs associated with:
- Shifting to the vendor the creation, management and storage of information and records that are subject to compliance duties.
- The added contract complexity -- and management costs -- for negotiating appropriate controls, and overseeing vendor compliance and reporting.
- Corrective and preventive strategies to recover from vendor-based events that create legal compliance risks.
As a result, many SaaS services contracted under standard, vendor-developed contracts are ticking time bombs. They add significant compliance risks that the CIO never evaluated at the front end of the process and create new ongoing costs in oversight and incident response that can reduce the actual economic value of the deal.
Charting the path forward
For both existing and future SaaS services, here are some useful steps a CIO can execute to manage compliance risks:
- Create a map relating to the application or service that identifies:
- The data each application or service creates or manages.
- The known compliance duties that relate to the identified data. Remember, compliance duties can refer to access controls, the type of data (especially nonpublic personal information in payroll, HR, benefits and retail services), data retention and storage policies, and formal reports to management of any of the preceding.
- The risks the company faces if the compliance duties are not performed.
- Define the services the SaaS vendor must provide (through the application or other services) to enable the CIO's company to meet its compliance duties and avoid those risks.
- Assure that all service agreements contain legal terms that impose responsibility for the required services on the SaaS vendor. Involve your lawyer in this step -- many CIOs avoid doing so, often creating more problems than they solve.
- For new vendors, identify needed compliance terms in the request for proposal or request for information in order to avoid later "add-on" premium pricing to deliver required compliance services.
- Establish in the contract vendor monitoring, and audit and reporting controls (often modeled on internal audit and security control structures) to assure compliance services are performed.
To see an idea about how to make this type of map, click here. This sample map summarizes the content of this article.
Regulators are now reviewing SaaS service agreements in detail, to assure the deals do not diminish a company's compliance posture. Finding (and eliminating) the ticking time bombs can help a CIO better achieve his or her SaaS ROI and promote a better culture of compliance.
Next month: Master data management: Crossing the legal chasm of ignorance
Jeffrey Ritter, Esq., is CEO of Waters Edge Consulting LLC in Reston, Va. Waters Edge offers strategic consulting services to develop improved information governance. Write to him at firstname.lastname@example.org.
This was first published in July 2008