Third-party risk management (TPRM) is an essential practice for any organization that works with other businesses or workers besides their own hires.
Relying on external vendors and service providers is common across many industries, but it doesn’t come without major risks. A strong TPRM strategy can protect your organization from encountering compliance violations, operational delays and disruptions, reputational dings, and more.
Business continuity is a crucial aspect of TPRM, ensuring that your organization can continue to operate during and after potential disruptions, such as third-party vendor failures or cyberattacks.
In this blog, we’ll walk through the key elements of a TPRM framework and provide guidance on how to choose a partner that fits your company’s unique business needs.
What Are the Key Elements of Third-party Risk Management?
Third-party risk management is all about considering your organization’s third-party partners – think vendors, contractors, or any kind of external service providers – and evaluating the level of risk they introduce.
Due diligence is crucial in evaluating third-party vendors to ensure their compliance and risk management processes are robust and reliable.
Careful risk identification is an important first step to ensure that vulnerabilities and threats don’t slip through the cracks. From there, accurately classifying risks allows you to prioritize high-risk vendors and allocate time and other resources effectively.
TPRM also involves continuous monitoring mechanisms, such as compliance audits, to ensure that third parties continue to adhere to necessary regulations and contractual obligations. Strong communication protocols are another key element here, as they keep everyone from vendors to stakeholders in the loop.
Businesses are increasingly relying on software solutions to help automate processes like risk assessments and monitoring, as they help streamline issue resolution. All of these elements work together to create a proactive and efficient risk management system.
What Are the 5 Phases of Third-party Risk Management?
TPRM is an ongoing and evolving process, and it may not look the same from one organization to the next. However, it’ll usually go something like this:
- Identification. List all third-party relationships and pinpoint potential risks (operational, financial, reputational, technological, IP, etc.).
- Assessment. Conduct a risk assessment to evaluate the likelihood and potential impact of all identified risks.
- Mitigation. Develop and implement strategies to reduce vulnerabilities, prioritizing where necessary based on the risks deemed most critical.
- Monitoring. Oversee third-party performance and compliance in real-time, focusing on managing third-party risk to ensure ongoing adherence.
- Review and Reporting. Analyze the effectiveness of your TPRM strategies and improve them for the future.
How to Classify Third Parties?
Step one of most TPRM strategies involves cataloging third-party partners and categorizing them. This is helpful in identifying risks more easily, developing mitigation strategies, and prioritizing efforts for more high-risk partners. You can start to do this by considering a number of factors, such as their financial value, direct impact on your operations, and relation to your data sensitivity.
Incorporating a structured third-party risk assessment framework in this classification process is crucial. This framework helps streamline vendor evaluations by deploying vendor questionnaires and conducting regular audits, ensuring third parties adhere to data security and compliance standards.
To maintain consistency and streamline this process, we recommend working internally to develop classification guidelines and templates that your organization can use going forward. This will make early TPRM phases more efficient and ensure that you’re effectively allocating resources, helping you focus on managing the relationships that pose the greatest potential risks.
How Do You Choose a Third-party Risk Management Framework?
To choose a strong TPRM framework, start by assessing your business’s unique goals and risk profile or how much risk you are willing to accept vs. mitigate. There are a few common risk management frameworks that provide good structures for considering risk management, such as the Shared Assessments TPRM Framework or NIST, as well as information security frameworks like the ISO 27001 or ISO 27036.
Integrating robust risk management processes within these frameworks is crucial. Establishing strong assessment mechanisms and continuous monitoring of vendors will help manage associated cybersecurity risks and regulatory compliance challenges.
You should also take into account any applicable industry regulations and ensure that the TPRM framework you choose aligns with them. In property management, this could mean prioritizing frameworks that address compliance with local and federal laws governing tenant data or contractor liability. Picking a good framework for your organization will help lay a strong foundation for effective risk management.
How Do You Choose a Third-party Risk Management Company?
Once you’ve established your framework and classified your vendors, the next step for many businesses is to work with a TPRM company that can streamline these efforts.
To find a TPRM company that aligns with your goals and values and has a strong professional reputation, consider companies with proven expertise in your industry. A reliable partner should offer tools and services tailored to your needs, such as automated COI tracking, vendor compliance monitoring, or specialized vendor risk management solutions.
Evaluate third-party vendors based on their software capabilities, ease of onboarding and integration, customer support, and track record of success. For many organizations, from small businesses to larger corporations, having personalized support is key to effectively managing the various third-party risks that might come their way. By choosing the right partner, you can strengthen your organization’s resilience and streamline third-party oversight.
Take Control of Third-Party Risks Today
Third-party risk management is a cornerstone of modern-day business. Taking important steps like choosing a risk management framework and partnering with a dedicated TPRM company will help safeguard and strengthen your organization and its business relationships for years to come.
Ready to simplify your risk management? Book a demo today to discover how our innovative solutions, backed by a white-glove customer support team, can protect your business and ensure compliance.