Third-party risk management is the practice of identifying, reducing, and monitoring the risks that your organization incurs from the third-parties you do business with — such as vendors, contractors, software, partners, and service providers. Having a TPRM program in place helps prevent a data breach or from a bad actor gaining access to your infrastructure.
Some organizations manage their third-party risk on an ad-hoc basis, but this often results in risks being missed and inefficient processes. For TPRM to reliably protect against threats, it needs to be a continuous process that is part of the organization’s daily operations.
Why is TPRM important?
Any third-party your organization does business with could present potential risks with severe consequences, which is why third-party risk management is critical. Some of these potential risk scenarios include:
- Using a software tool that integrates with your systems that, if breached, would give hackers access to your critical data.
- Relying on a vendor for core aspects of your business that could halt operations in case of an outage.
- Losing inventory as a result of a supplier mishap that prevents you from fulfilling orders or performing other operations.
- Giving a vendor access to your proprietary data that they could share with a competitor.
Third-party risk management helps you anticipate and minimize these risks as much as possible and ensures you maintain compliance as well. Many compliance frameworks — such as SOC 2 or ISO 27001 — require you to take steps to minimize organizational risks that could affect your customers, which a well-design TPRM program achieves.
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Who is responsible for TPRM?
There is no formal guidance about which department or leaders should be responsible for your TPRM program, unless you specifically have a risk management or vendor risk management team.
Depending on how your organization is structured, you could assign TPRM ownership to:
- The head of procurement
- The CISO
- The head of risk and compliance
- A third-party risk manager
- A supply chain leader
While it’s important to have a designated person to oversee the organization’s third-party risk, your program should be a collaborative effort between stakeholders in executive leadership, procurement, information security, IT, legal, and compliance.
TPRM lifecycle and best practices
Your TPRM process should help your organization stay ahead of risk changes via third parties. Every organization’s program will be structured to meet their own needs, but the process should follow these steps:
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1. Identifying third parties
Take inventory of all the third-party tools, vendors, contractors, and others that are used throughout your organization. Be sure to identify even minor tools that employees might be using, like browser plug-ins, that aren’t part of official protocols.
2. Vet against security criteria
Review the vendors that your organization currently uses. Understand their security posture and risk factors and determine if they meet your essential requirements. If you don’t already have a list with minimum requirements, collaborate with your legal, compliance, and IT security teams to create a list of risk-reducing requirements for your vendors.
During this process, ensure you’ve included these requirements in your contracts. For example, your contracts could include:
- The scope of what the vendor is contracted to do or provide, including pricing for this service or product
- Service level agreements that require a certain level of performance or percentage of uptime
- Intellectual property ownership clauses
- Non-disclosure agreements
- Insurance requirements
- Limitations of liability
- Data protection agreements
- Clauses that prevent subcontracting or outline processes that must be followed for subcontracting
These contract clauses can vary depending on the services or products the external party is providing.
3. Conducting risk assessments
Now go through your list of vendors and conduct a risk assessment for each one. This may involve:
- Determining what data the vendor has access to.
- Understanding how the vendor contributes to your operations.
- Requesting that the vendor completes a risk questionnaire to understand their risk reduction practices.
- Identifying risks each vendor could pose to your organization and evaluating how likely the risk is to occur and how much of an impact it would have if it did occur.
4. Mitigating risks
After you understand the risks that each vendor poses, take steps to minimize the risks with high impact and that are likely to occur. Some examples for these types of steps could be, sectioning off the types of data a vendor has access to or establishing contingency plans in case a failure occurs on the part of your supplier. If there is no way to mitigate the risk associated with a certain high-risk vendor, you may need to stop using them altogether.
5. Continuous monitoring
New third-party risks can arise or change due to software updates, changes to their internal practices and policies, and so on. Establish an ongoing process for conducting regular vendor risk reviews and look for potential risk changes, such as updated user agreements or software updates. Create and maintain a centralized report where you can track these changes to your third-party risks.
6. Offboarding
Establish an offboarding process so that you can effectively remove vendor access as your work with them ends. This should include removing their log-in credentials and system access, making data storage changes, and so on. Keep documentation of these actions as evidence in audits or for legal reviews if necessary.
Implementing a TPRM program
Each organization’s TPRM program will be different depending on the types of vendors you use, however these are the typical steps to take to implement a TPRM program:
- Use a vendor management tool: Use a vendor risk management tool to manage your TPRM program. These tools can track third-party data and evidence, identify risks, suggest mitigation actions, and detect unknown vendors and tools that connect to your system.
- Establish baseline requirements: Depending on your industry and organization’s needs, there should be certain criteria that are non-starters for all third parties. Establish a list of must-have requirements needed by a vendor that act as the minimum necessary to do business with your organization.
- Assign roles and responsibilities: Third-party risk management involves several teams and individuals throughout your organization. Establish roles and responsibilities and communicate them clearly to those individuals.
- Create a reporting process: Set up practices for how third-party risk management will be reported, who receives and reviews those reports, the cadence of these reports, and so on.
- Proceed with the TPRM lifecycle: Using your vendor management software as a centralized source, follow the steps in the TPRM lifecycle to identify vendors in use, analyze risks those vendors could pose, mitigate them, and monitor them continuously.
Proactively manage third-party risk
Move from managing your third-party risk via tedious and point-in-time vendor reviews to continuous, automated reviews that are done quickly and easily. Vanta’s Vendor Risk Management solution lets you automate vendor onboarding, risk assessment, and remediation so you can spend less time on vendor reviews and more time strengthening your security posture.
Here are some of Vanta’s Vendor Risk Management solutions’ capabilities:
- Automatic vendor discovery: Automatically discover third-party applications being used by your employees, whether approved by IT or not.
- Risk assessment workflows: Assign inherent risk levels to vendors using a detailed risk rubric that can be customized to your requirements.
- AI-powered security reviews: Manage the end-to-end security review process in one place and use Vanta AI to automatically analyze and document findings about the vendor’s security posture from SOC 2 reports, DPAs, and other sources.
- Procurement integrations: Connect your procurement system to seamlessly record, triage, and respond to security review requests from Vanta.
Take a tour of Vanta’s Vendor Risk Management platform or request a demo to learn more.
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Risk
What is third-party risk management (TPRM)?
Risk
Third-party risk management is the practice of identifying, reducing, and monitoring the risks that your organization incurs from the third-parties you do business with — such as vendors, contractors, software, partners, and service providers. Having a TPRM program in place helps prevent a data breach or from a bad actor gaining access to your infrastructure.
Some organizations manage their third-party risk on an ad-hoc basis, but this often results in risks being missed and inefficient processes. For TPRM to reliably protect against threats, it needs to be a continuous process that is part of the organization’s daily operations.
Why is TPRM important?
Any third-party your organization does business with could present potential risks with severe consequences, which is why third-party risk management is critical. Some of these potential risk scenarios include:
- Using a software tool that integrates with your systems that, if breached, would give hackers access to your critical data.
- Relying on a vendor for core aspects of your business that could halt operations in case of an outage.
- Losing inventory as a result of a supplier mishap that prevents you from fulfilling orders or performing other operations.
- Giving a vendor access to your proprietary data that they could share with a competitor.
Third-party risk management helps you anticipate and minimize these risks as much as possible and ensures you maintain compliance as well. Many compliance frameworks — such as SOC 2 or ISO 27001 — require you to take steps to minimize organizational risks that could affect your customers, which a well-design TPRM program achieves.
{{cta_withimage5="/cta-modules"}}
Who is responsible for TPRM?
There is no formal guidance about which department or leaders should be responsible for your TPRM program, unless you specifically have a risk management or vendor risk management team.
Depending on how your organization is structured, you could assign TPRM ownership to:
- The head of procurement
- The CISO
- The head of risk and compliance
- A third-party risk manager
- A supply chain leader
While it’s important to have a designated person to oversee the organization’s third-party risk, your program should be a collaborative effort between stakeholders in executive leadership, procurement, information security, IT, legal, and compliance.
TPRM lifecycle and best practices
Your TPRM process should help your organization stay ahead of risk changes via third parties. Every organization’s program will be structured to meet their own needs, but the process should follow these steps:
1. Identifying third parties
Take inventory of all the third-party tools, vendors, contractors, and others that are used throughout your organization. Be sure to identify even minor tools that employees might be using, like browser plug-ins, that aren’t part of official protocols.
2. Vet against security criteria
Review the vendors that your organization currently uses. Understand their security posture and risk factors and determine if they meet your essential requirements. If you don’t already have a list with minimum requirements, collaborate with your legal, compliance, and IT security teams to create a list of risk-reducing requirements for your vendors.
During this process, ensure you’ve included these requirements in your contracts. For example, your contracts could include:
- The scope of what the vendor is contracted to do or provide, including pricing for this service or product
- Service level agreements that require a certain level of performance or percentage of uptime
- Intellectual property ownership clauses
- Non-disclosure agreements
- Insurance requirements
- Limitations of liability
- Data protection agreements
- Clauses that prevent subcontracting or outline processes that must be followed for subcontracting
These contract clauses can vary depending on the services or products the external party is providing.
3. Conducting risk assessments
Now go through your list of vendors and conduct a risk assessment for each one. This may involve:
- Determining what data the vendor has access to.
- Understanding how the vendor contributes to your operations.
- Requesting that the vendor completes a risk questionnaire to understand their risk reduction practices.
- Identifying risks each vendor could pose to your organization and evaluating how likely the risk is to occur and how much of an impact it would have if it did occur.
4. Mitigating risks
After you understand the risks that each vendor poses, take steps to minimize the risks with high impact and that are likely to occur. Some examples for these types of steps could be, sectioning off the types of data a vendor has access to or establishing contingency plans in case a failure occurs on the part of your supplier. If there is no way to mitigate the risk associated with a certain high-risk vendor, you may need to stop using them altogether.
5. Continuous monitoring
New third-party risks can arise or change due to software updates, changes to their internal practices and policies, and so on. Establish an ongoing process for conducting regular vendor risk reviews and look for potential risk changes, such as updated user agreements or software updates. Create and maintain a centralized report where you can track these changes to your third-party risks.
6. Offboarding
Establish an offboarding process so that you can effectively remove vendor access as your work with them ends. This should include removing their log-in credentials and system access, making data storage changes, and so on. Keep documentation of these actions as evidence in audits or for legal reviews if necessary.
Implementing a TPRM program
Each organization’s TPRM program will be different depending on the types of vendors you use, however these are the typical steps to take to implement a TPRM program:
- Use a vendor management tool: Use a vendor risk management tool to manage your TPRM program. These tools can track third-party data and evidence, identify risks, suggest mitigation actions, and detect unknown vendors and tools that connect to your system.
- Establish baseline requirements: Depending on your industry and organization’s needs, there should be certain criteria that are non-starters for all third parties. Establish a list of must-have requirements needed by a vendor that act as the minimum necessary to do business with your organization.
- Assign roles and responsibilities: Third-party risk management involves several teams and individuals throughout your organization. Establish roles and responsibilities and communicate them clearly to those individuals.
- Create a reporting process: Set up practices for how third-party risk management will be reported, who receives and reviews those reports, the cadence of these reports, and so on.
- Proceed with the TPRM lifecycle: Using your vendor management software as a centralized source, follow the steps in the TPRM lifecycle to identify vendors in use, analyze risks those vendors could pose, mitigate them, and monitor them continuously.
Proactively manage third-party risk
Move from managing your third-party risk via tedious and point-in-time vendor reviews to continuous, automated reviews that are done quickly and easily. Vanta’s Vendor Risk Management solution lets you automate vendor onboarding, risk assessment, and remediation so you can spend less time on vendor reviews and more time strengthening your security posture.
Here are some of Vanta’s Vendor Risk Management solutions’ capabilities:
- Automatic vendor discovery: Automatically discover third-party applications being used by your employees, whether approved by IT or not.
- Risk assessment workflows: Assign inherent risk levels to vendors using a detailed risk rubric that can be customized to your requirements.
- AI-powered security reviews: Manage the end-to-end security review process in one place and use Vanta AI to automatically analyze and document findings about the vendor’s security posture from SOC 2 reports, DPAs, and other sources.
- Procurement integrations: Connect your procurement system to seamlessly record, triage, and respond to security review requests from Vanta.
Take a tour of Vanta’s Vendor Risk Management platform or request a demo to learn more.
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Proactively manage vendor risk, easily
Get best practices from security leaders on how to manage third-party risk while reducing inefficiencies.
See how VRM automation works
Request a demo to see how Vanta can automate up to 90% of your VRM processes.
Proactively manage vendor risk, easily
Get best practices from security leaders on how to manage third-party risk while reducing inefficiencies.
See how VRM automation works
Request a demo to see how Vanta can automate up to 90% of your VRM processes.
Proactively manage vendor risk, easily
Get best practices from security leaders on how to manage third-party risk while reducing inefficiencies.
See how VRM automation works
Request a demo to see how Vanta can automate up to 90% of your VRM processes.
| Role: | GRC responsibilities: |
|---|---|
| Board of directors | Central to the overarching GRC strategy, this group sets the direction for the compliance strategy. They determine which standards and regulations are necessary for compliance and align the GRC strategy with business objectives. |
| Chief financial officer | Primary responsibility for the success of the GRC program and for reporting results to the board. |
| Operations managers from relevant departments | This group owns processes. They are responsible for the success and direction of risk management and compliance within their departments. |
| Representatives from relevant departments | These are the activity owners. These team members are responsible for carrying out specific compliance and risk management tasks within their departments and for integrating these tasks into their workflows. |
| Contract managers from relevant department | These team members are responsible for managing interactions with vendors and other third parties in their department to ensure all risk management and compliance measures are being taken. |
| Chief information security officer (CISO) | Defines the organization’s information security policy, designs risk and vulnerability assessments, and develops information security policies. |
| Data protection officer (DPO) or legal counsel | Develops goals for data privacy based on legal regulations and other compliance needs, designs and implements privacy policies and practices, and assesses these practices for effectiveness. |
| GRC lead | Responsible for overseeing the execution of the GRC program in collaboration with the executive team as well as maintaining the organization’s library of security controls. |
| Cybersecurity analyst(s) | Implements and monitors cybersecurity measures that are in line with the GRC program and business objectives. |
| Compliance analyst(s) | Monitors the organization’s compliance with all regulations and standards necessary, identifies any compliance gaps, and works to mitigate them. |
| Risk analyst(s) | Carries out the risk management program for the organization and serves as a resource for risk management across various departments, including identifying, mitigating, and monitoring risks. |
| IT security specialist(s) | Implements security controls within the IT system in coordination with the cybersecurity analyst(s). |
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