Elizabeth Bradshaw is an experienced writer and cybersecurity enthusiast. With a passion for unraveling the complexities of data security, she brings valuable insights and expertise to the readers of Data Watchtower.
In today’s business environment, third-party relationships have become increasingly critical for cost reduction and increasing capabilities. However, they can also add complexity and risk to an organization’s operations, making third-party risk management a critical part of risk management. Ensuring regulatory compliance, managing data security, and preventing reputational harm are just a few of the challenges organizations face when collaborating with third-party vendors, suppliers, and partners. Therefore, developing an effective third-party risk management framework has never been more essential.
What is Third-Party Management and Risk Management?
Before diving into third-party risk management, let’s understand the basic concepts of third-party management and risk management.
Third-party management involves monitoring and managing relationships with external entities, including vendors, suppliers, and business partners.
Risk management is the practice of identifying, assessing, and controlling risks. It helps organizations anticipate and mitigate potential risks that can impact their operations, reputation, and bottom line.
Third-party risk management is essentially a form of risk management that focuses on identifying and reducing risks associated with the use of third parties. It includes assessing various types of risks such as financial, environmental, reputational, and cybersecurity risks. Common job titles and departments that “own” third-party risk include procurement, compliance, legal, and security.
In the following sections, we’ll explore how to develop an effective third-party risk management framework and highlight some of the best practices, key steps and features of effective TPRM platforms. By adopting best practices and leveraging the features of a comprehensive TPRM platform, organizations can build resilience in their supplier relationships and promote business growth while mitigating risks.
Third-Party Risk Management (TPRM)
Managing third-party risks can be a complicated task, especially when organizations need to align with regulatory requirements. With more external parties involved in various processes like data handling and other critical functions, risks can multiply and potentially lead to legal, financial, security, and reputational consequences. A comprehensive third-party risk management program creates opportunities to assess and address these risks. TPRM best practices include prioritizing vendor inventory, leveraging automation, and thinking beyond cybersecurity risks.
The TPRM lifecycle consists of several stages, including:
Third-party identification and inventory management
Evaluation and selection
Risk assessment
Risk mitigation
Contracting and procurement
Reporting and recordkeeping
Ongoing monitoring
Vendor offboarding
Key steps in developing an effective TPRM framework include analysis, engagement, remediation, approval, and monitoring.
Features of a robust TPRM platform include:
Security ratings for vendors and suppliers
Customizable questionnaires to measure vendor risk against certain criteria
Scalability and automation to manage a high volume of third-parties
Remediation workflows to perform risk mitigation
Continuous monitoring to help identify emerging risks
The advantages of an effective TPRM program include the abilities to recognize vendor risk and vulnerabilities, improve control, limit reputational damage, and protect against cybersecurity attacks, data breaches, and compliance issues.
Developing an Effective Third-Party Risk Management Framework
The need for a new vendor risk management approach is clear as third-party risks are identified as a top threat by compliance leaders. As a result, third-party risk management programs have taken center stage in helping organizations manage a range of risks and remain compliant with regulatory requirements. In addition, they can strengthen supply chains, improve decision-making quality, and provide a basis for performance measurement.
To develop an effective TPRM framework, consider the following:
Due Diligence and Contract Risk Management
Effective contract review and management can mitigate risks associated with contractual and non-contractual parties. Conduct due diligence of potential vendors to ensure they comply with legal and industry standards. Creating an organization-wide risk profile helps identify and categorize third-party risk, align policy, and build a TPRM plan.
Legal and Compliance Research
All third-party relationships have a legal component. Therefore, it is essential to research and analyze compliance and regulatory standards regarding the use and disclosure of confidential and personally identifiable information (CPII), protected health information (PHI) under HIPAA, and personal financial information (PFI) under HITECH.
Risk Assessment and Quantitative Security Analysis
Incorporate a risk assessment into vendor and supplier selection processes to ensure that business partners align with the organization’s risk tolerance and risk management strategies. Assess cybersecurity posture and evaluate the vendor’s ability to manage potential environmental risks and other legal and regulatory obligations.
Ongoing Monitoring Approaches
Incorporate continuous monitoring processes to ensure compliance with policies, regulations, and standards, and to help flag any potential risks, including reputational risks or overall performance issues. Utilizing qualitative and quantitative approaches to assessing vendor performance enables supply chain risk management continuity.
Partnering Across the c-suite – Embracing Third-Party Partnerships
Third-party risk management is not only about mitigating risks but also about how to identify and manage potential opportunities. Partnering with c-suite executives, including the Chief Risk Officer (CRO) and Chief Information Security Officer (CISO), will ensure every aspect of the program is integrated and aligned with the overall strategy of the organization.
Process Changes to Third-Party Risk Management
Organizations need to establish new approaches that ensure third-party risks don’t lead to reputational damage, compliance challenges, or even business disruption. Consider adopting new processes towards third-party risk management, which includes implementing automation, deploying SaaS-delivered enterprise platforms, and outsourcing vendor risk management needs.
Supply Chain Risk Management and Transformation
Procurement departments and supplier risk management need to work collaboratively to identify potential vendor risks and ensure all parties comply with governance and corporate and social responsibility compliance standards.
Meeting Regulatory Expectations
Compliance with regulations such as GDPR, CCPA, and other emerging standards is paramount for third-party risk management. Organizations need to build processes and procedures that help demonstrate compliance and provide accurate reports detailing data disclosure and privacy according to new data protection laws.
The Benefits of Third-Party Partnerships
Organizations looking for ways to create a competitive edge and promote business growth can do so by developing long-term and mutually beneficial third-party partnerships. By fostering closer relationships and improving communication with stakeholders, businesses can unlock opportunities for innovation and better risk management.
Conclusion
Third-party relationships are an essential component of modern business operations, but they can expose organizations to risks and compliance issues that may have significant consequences. To mitigate these risks and ensure regulatory compliance, organizations must take steps to develop effective TPRM programs. Companies must prioritize vendor inventory, have scalable and automated TPRM platforms, and think beyond cybersecurity risks. By adopting best practices, using key steps, and leveraging the features of an effective TPRM platform, organizations can build resilience and drive business growth through third-party partnerships.
Elizabeth Bradshaw is an experienced writer and cybersecurity enthusiast. With a passion for unraveling the complexities of data security, she brings valuable insights and expertise to the readers of Data Watchtower.
