Why Is Third Party Risk Management Important?

Third-party risk management (TPRM) is essential to a company’s security, as it helps to protect the company from the risks that come with its involvement with an outside vendor. By relying on a third party for necessary business products or services, a company may be subject to reputational risks, financial risks, and information risks, should a mishap with the third party occur.

It is important to vet third parties to determine their trustworthiness. Often third-party involvement requires the sharing of confidential information between both parties to perform business. Cybersecurity risks can be especially common with third parties, as they can have access to sensitive information. By not having control over the vendor’s cybersecurity, your company must trust the third-party organization to keep the shared data secure.

Third parties and supply chain partners can provide organizations with necessary services like shipping, website/Cloud hosting, supplies, and more. However, if that third party suddenly cannot provide the services required, this can be a problem for the main organization.

Read more: Don’t Overlook IT Risk Compliance When Defending Against Cyberattacks

TPRM Best Practices

Keep a Third-Party Inventory

Keeping an inventory of your third parties and vendors is a great way to keep track of your outside involvement. Furthermore, these inventories can be organized based on classification factors. Tier levels can be used to measure the importance of your organization’s partnership based on the risk that a third-party mishap would pose for your organization.

Inherent risk can be determined based on the amount of confidential information shared between the organizations.

Inherent risk can be determined based on the amount of confidential information shared between the organizations, or how critical third-party functioning is to your organization’s functioning. The level of impact from a third-party issue should be considered, such as the misuse of important information or the inability to access a vendor’s services.

Know the TPRM Lifecycle

The third-party risk management lifecycle is a process to promote your organization’s security based on third-party involvement. According to ISG, this lifecycle includes four phases:

  1. Setup and Tiering: Developing business requirements, assigning stakeholders, and performing an initial risk assessment and tiering
  2. Due Diligence and Selection: Conducting third-party risk assessment, SME evaluation and reporting, putting controls in place, and third-party selection
  3. Negotiation and Onboarding: Contract negotiation, residual risk review and approval, and contract onboarding
  4. Ongoing Monitoring and Management: Risk monitoring and remediation, contract and relationship management, and termination management

By performing these tasks in order, your organization can make wiser decisions regarding increasing security with third-party organizations.

Use Automation When Possible

Companies and organizations should utilize automation, when possible, to stay on top of third-party risk factors. Automation can save companies the time and effort of ensuring the security of third-party risks. In addition, they can improve safety by quickly and continuously analyzing third parties and collecting data on security levels. Third-party risk management frameworks and tools are a great example of how automated systems can save companies time, money, and resources.

Third-Party Risk Management Framework

Investing in third-party risk management software can help you streamline your third-party management and reduce risk factors. Many TPRM frameworks use automation to monitor and assess the presence of third-party risks. TPRM frameworks use artificial intelligence (AI) to automate the risk management process. They can offer organizations many benefits, such as better data visibility, easier third-party security assessments, and swifter vendor onboarding.

TPRM frameworks provide advanced reporting capabilities on potential risk factors through third-party risk assessment and other tools. For example, OneTrust Vendorpedia is third-party risk software that uses risk assessments to gather useful information on third-party organizational risk factors. Their system allows companies to request assessments from third parties easily and validates the legitimacy of the assessments through control testing.

TPRM frameworks use artificial intelligence to automate the risk management process.

Similarly, SecurityScorecard Atlas is a framework that manages third-party relationships by performing security ratings based on vendors’ responses to questionnaires. They then compare the answers to previous questionnaires and platform analytics for verification, and then rating the vendor’s security. In addition, TPRM frameworks can store this data and organize third-party information, which can simplify the auditing process for companies.

Third-party risk frameworks can save organizations time and costs by reducing risks automatically. Third-party risk factors can occur at any time, and it is essential to stay on top of your company’s security constantly. Automation is helpful in this sense as it can continuously analyze potential risk factors of third parties and vendors.

For example, the UpGuard framework constantly monitors both third-party and internal attack surfaces for risks. They also provide their clients with automated penetration testing. Processes like these make third-party risk tools extremely valuable in analyzing the security risks that could occur through a business partnership.

Read more: How to Do a Software Evaluation

Managing Third-Party Risk

Third parties can cause security breaches, but third-party relationships are necessary for many organization functions. Fortunately, there are practices that companies and organizations can follow to improve their third-party security. By taking security measures like monitoring risk factors and third-party inventory, your organization can avoid the possible issues that can arise from these partnerships.

And when looking for ways to bring third-party security to the next level, using automation through third-party risk management frameworks and tools is a practical option. Relying on third parties can be dangerous, so practicing third-party risk management is vital to ensure the safety and success of an organization.

Read next: How to Create a Data Retention Policy

Madeline Clarke
Madeline Clarke
Madeline is a freelance writer specializing in copywriting and content creation. After studying Art and earning her BFA in Creative Writing at Salisbury University she applied her knowledge of writing and design to develop creative and influential copy. She has since formed her business, Clarke Content, LLC, through which she produces entertaining, informational content and represents companies with professionalism and taste. You can reach Madeline via email at madelineclarkebusiness@gmail.com

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