Almost every business outsources some form of product or service from a third-party; it’s a practice that is known to be very beneficial to businesses.
However, working with third-parties can be risky because your organization is putting trust into a business whose practices and processes are beyond your control.
Third-party risk management, or TPRM, is the analysis and control of risks associated with third-party vendors. Third-party vendors can be anyone, from contractors, suppliers, or partners, and they can present a variety of risks, including:
- Cybersecurity: When partnered with third-parties, confidential information and data are bound to be exchanged, and this information is at risk through security breaches.
- Reputational Risk: Immoral or illegal practices conducted by third-parties also reflect upon your business, affecting your reputation.
- Operational Risk: When relying on third-parties for services, your own organization can be impacted when internal processes of the third-party fail or if the third-party is affected by a natural event.
Recent Changes In Third-Party Risk
As businesses grow and change, so do the risks that they face.
Reliance on Software
Organizations have become reliant on third-party software to help run their businesses. Software like payroll and email marketing solutions are examples, but because organizations are putting more of their data into this kind of software, more risk is created.
Reliance on Network
There has been a growth in reliance on third-parties to achieve goals, and this results in increased information sharing and collaboration that can expose the security of an organization.
Regulators have taken more interest in how companies are managing third-party risks and outsourcing and have begun assigning fines for violations.
Best Practices for Implementation
There are many practices that organizations can implement to both recognize risks and mitigate them, and below, the best TPRM solutions are highlighted.
Understand Your Third-Party
Before you can understand the risks that a third-party poses, you need to understand who your third-parties are and:
- How much information is being shared
- What information is being shared
This can be difficult. Not only are you working with third-parties, but those third-parties are working with their own third-parties, referred to as fourth parties. It can be difficult to determine the kind of risk that the third-party poses when you’re not sure what risks the fourth party poses.
Once you have an idea of who the vendors your organization partners with are and what information they’re able to access, you can make some determinations about the kind of risks that they may pose.
Not all vendors pose the same kind of threat to your organization. When looking at your vendors, prioritize the ones that will pose the bigger threats; these are vendors that either handle or have access to critical business processes.
You can prioritize them by assigning them to three different tier levels: high, medium, or low risk. The vendors on the high-risk tier are going to be the ones you want to focus more of your organization’s attention on.
You’re going to want to not only monitor your high-risk vendors continuously, but you want continuous monitoring of all of the third-parties you conduct business with. This can clue you into any new risks they may pose.
Maintain your due diligence when it comes to third-parties. Due diligence is the investigation of third-parties before entering into an agreement or contract with them. However, due diligence continues long after the contract begins, as third-parties and their processes may change.
By conducting your due diligence, you can catch new risks before they pose a threat to your organization through audits and assessments. These audits and assessments can take place on an ongoing, annual basis.
Due diligence, the act of taking reasonable steps to determine risk, can be very labor intensive. If an organization works with hundreds or thousands of third-parties, monitoring them for risk can be especially challenging.
This is where automation can play an important role; automated tools can help to reduce paperwork and strain on your organization.
Automation can also help collect consistent data. Third-parties may answer questions differently across multiple questionnaires, which automated tools can record.
When implementing TPRM, there are other practices that offer benefits.
- Include stakeholders, such as those involved in compliance, security, and procurement, in the process of designing TPRM programs.
- Utilize specialized software to manage third-party risks.
- Create a third-party inventory so that you have an overview of all of your third-parties and the contact persons within them.
- Develop structured on-boarding and off-boarding processes so that third-parties understand your organization’s security standards and policies and have agreed to them.
- Assign risk profiles to both third-parties and contracts.
- Consider implementing a centralized risk management model that will conduct risk assessments for your organization.
By utilizing these practices within your organization, you can minimize the risk that your third-party’s may present.