What is third-party risk management?
Third-party risk management (TPRM) is a type of risk management that focuses on identifying and mitigating risks associated with the usage of third-party vendors (sometimes referred to as vendors, suppliers, partners, contractors, or service providers). Third-party risk management helps businesses to monitor and analyze the risk posed by third parties in order to determine when it exceeds the company’s risk threshold.
For example, assume you deal closely with a shipping agency that has access to all your client information. By granting that access to this shipping agency you may have expedited your operations, but you have also created possible hazards coming from this third-party connection. (For example, the agent could mistakenly release your client data online.)
Working with a third party might put your company in danger. If they have access to sensitive data, they may pose a security risk; if they supply a critical component or service to your company, they may provide an operational risk, and so on. This helps enterprises to make risk-informed decisions and limit the risk provided by suppliers to an acceptable level.
What are the top TPRM best practices?
There are several third-party risk management best practices that may assist you in developing a stronger program, whether you’re just getting started with TPRM or want to understand where your current program could be improved.
1- Time should be spent on the foundational elements.
When companies decide to evaluate suppliers, they frequently hurry to prepare a questionnaire and conduct assessments without first laying the groundwork. The core pieces of a successful program — policies, processes, a detailed supplier inventory, and the proper contracting method — must all be well-established.
The relevant stakeholders must be involved in order to accomplish this. Suppliers are partners in the business unit, and the group in charge of risk assessments must regard them as such. Suppliers must be at ease with the process, understand what must be done, and assist in determining what will happen if controls are not discovered to be in place.
2-Monitor your suppliers continuously
Questionnaires and surveys are snapshots of time. These tools are static, and they only provide you a partial picture of a vendor’s security posture. In many circumstances, there is no means to check the veracity of surveys, so you may have to take someone’s word for it that they are compliant.
You can avoid all of these problems by using tools that allow you to continuously monitor your vendors’ security posture, receiving notifications whenever a vendor goes out of compliance, and scanning for problems the vendor may not be aware of, such as an Amazon Web Services bucket that has been misconfigured, dark web chatter about breached assets, or other assets that have been left unsecured.
3-Utilize automation Wherever possible
When operations are uniform and repeatable, efficiencies develop. Automation is useful in a number of aspects of the third-party risk management lifecycle.
Since each third-party risk management program is unique, begin by searching internally for repeatable activities that can be automated. Start small and take realistic efforts to automate critical chores from there. This modest automation will add up over time, saving your team time, money, and resources.
4-Look at it as a Lifecycle
Organizations have erroneous assumptions regarding the breadth of third-party risk efforts from time to time. Develop your program to ensure that you cover the whole lifetime of your supplier relationships — from selection through onboarding, management, and termination — and that you carefully consider the cost and work associated with each phase.
What is the third-party risk management lifecycle?
The third-party risk management lifecycle is a concept that describes the many stages of risk that you must manage with your third parties over the course of your partnership. Companies seldom have complete control over their supply chains, therefore they now rely on third parties to bridge expertise, time, and financial gaps. However, enlisting outside help has a higher level of danger. Third parties have proven particularly useful in the field of cybersecurity for conducting security audits, monitoring networks, and increasing services supplied. Establishing a third-party collaboration, on the other hand, does not happen quickly.
Have a clear definition of what needs to go through the lifecycle process and what doesn’t. This includes clarifying what a vendor, service provider, or third party means to your company. Customers, clients, and maybe certain sorts of partners should all be kept out of this process.
1-Assessment of inheriting risk and criticality
The first stage in a vendor engagement is to determine the underlying risk and criticality since this lays the path for adequate and risk-based due diligence. It assists in determining the maximum level of risk that the engagement may bring to your business by assessing how reliant you will be on this vendor once the connection is up and running.
- The evaluation of risk-based only on the nature of the connection — without regard for any safeguards or controls in place — is known as an inherent risk. The is frequently graded using a three-tiered method, with the low, moderate, and high risk being the most common.
- A judgment of the commercial effect of an engagement or whether or not a certain service would be vital to your internal operations is known as criticality. This vendor is usually categorized as either critical or non-critical.
2-Residual risk diligence and determination
You’ll figure out the best strategy to guarantee that the underlying risk is properly and efficiently minimized. The procedure for doing so includes gathering and confirming information from and about the vendor, as well as incorporating controls that mitigate or decrease the inherent risk.
You can confirm the following by collecting vendor due diligence documentation:
- The vendor’s trustworthiness and reputation
- The efficiency with which mitigation controls work
- The risk that remains
3-Vendor selection and contract management
The administration of written agreements with third parties that provide your business with products or services is known as vendor contract management. A well-written contract is the finest protection against unanticipated difficulties, saving money, time, expenditure, and unneeded inconveniences such as missing important contract term dates! In contract management, don’t forget about SLAs. If they’re tracked and reported on effectively, they’re a big help in holding both sides accountable.
Contract management develops expectations to safeguard your company from all types of vendor risk by:
- Having a system in place for internal contract strategy, negotiation, creation, drafting, approval, execution, storage, and management.
- Including necessary controls
- Setting up service level agreements (SLAs)
- Keeping track of important contractual dates
4- Ongoing Monitoring
After you sign a contract, it’s critical to keep an eye on your vendors to ensure you’re aware of any new risks. You want to put yourself in a position to be ready if things start to go wrong, such as if SLAs aren’t being met or if a data breach or incident occurs. You should have all of the relevant information and notifications in place to deal with the problem quickly.
It is beneficial to follow the following steps to establish a healthy practice of continual monitoring:
- Run reports on a regular basis.
- Conduct regular risk assessments.
- Set up an SLA tracking system.
- Make use of an open-source monitoring program.
- Review schedules should be based on the level of risk that exists.
- Establish a standard for regular monitoring.
- Follow your company’s third-party risk management policy.
Finally, a relationship must come to an end at some point. Whether it’s due to a vendor’s inability to deliver, the end of a contract term, or just the necessity to move on to greater and better things, the termination processes for every given vendor should always be considered.