Strengthening Third-Party Risk Management: Lessons from Recent Breaches and Best Practices

In an era where third-party security and data breaches frequently make headlines, the importance of robust Third-Party Risk Management (TPRM) cannot be overstated. Incidents involving SolarWinds, Kaseya, Accellion, Microsoft, and Volkswagen highlight the severe risks posed by third-party breaches, which can threaten data security and cause significant regulatory, financial, and reputational damage.

Despite the clear risks, the adoption of third-party services continues to rise. According to a 2022 Deloitte report, 73% of surveyed organizations have a moderate to high level of dependence on Cloud Service Providers (CSPs). However, many organizations struggle to implement effective TPRM practices.

Now is the time to enhance your third-party risk management practices. One useful resource is the guide “Effective Third-Party Risk Management: Key Tactics and Success Factors,” which explores key TPRM principles and offers practical tips for building a successful TPRM program. Below is an overview of third-party risk management fundamentals and guiding principles.

Understanding Third-Party Risk Management

TPRM programs provide structure and oversight for managing the risks associated with third-party engagements. This involves:

1. Identification and Categorization: Cataloging and classifying all third-parties engaged by the organization.
2. Risk Assessment: Evaluating and prioritizing the risks each third-party presents.
3. Risk Mitigation: Implementing controls to manage these risks.
4. Continuous Monitoring: Regularly reassessing third-party relationships and risk exposures.
5. Responsive Action: Addressing issues in real-time and fostering awareness and accountability throughout the organization.

TPRM encompasses a wide range of external entities, including suppliers, vendors, contractors, managed service providers, and CSPs. Known also as Vendor Risk Management (VRM) or Supply Chain Risk Management (SCRM), TPRM extends to managing the digital supply chain.

Guiding Principles of Third-Party Risk Management

TPRM programs vary based on organizational size, scope, resources, regulatory requirements, and risk profiles. However, successful programs share several key principles:

• Cyclical Nature: As new third parties are engaged and existing relationships evolve, risk assessments and monitoring must be periodically revisited.
• Integration with Enterprise Risk Assessments: TPRM should align with broader enterprise and cyber risk assessments.
• Accountability Culture: TPRM responsibilities should be distributed across functions and business units, with clear accountability for managing third-party risks.

The Third-Party Risk Management Lifecycle

The TPRM lifecycle involves several stages:

1. Third-Party Identification and Discovery: Cataloging all vendors, starting with simple tools like spreadsheets or specialized software like AuditBoard TPRM.
2. Risk Categorization and Assessment: Evaluating vendors to understand the risks and their potential impact on the organization.
3. Risk Treatment and Management: Addressing any open risks or gaps identified during the assessment phase.
4. Continuous Monitoring: Implementing ongoing monitoring to ensure risks are managed effectively and the TPRM program remains optimal.
5. Third-Party Offboarding: Properly terminating third-party relationships, ensuring that access privileges are revoked, and company assets are retrieved.

Common Components of TPRM Programs

Effective TPRM programs are built around several core components:

• Third-Party Selection and Due Diligence: Establishing benchmarks for vendor selection, such as cybersecurity certifications (e.g., ISO 27001, SOC 2) and industry standards (e.g., GDPR compliance).
• Third-Party Onboarding: Conducting a formal third-party risk assessment and integrating the new vendor into the organization’s ecosystem.
• Third-Party Maintenance and Monitoring: Assigning relationship owners, maintaining communication, and using automation for ongoing monitoring and periodic reviews.
• Third-Party Offboarding: Ensuring complete removal of third-party access and retrieving company assets.

Addressing TPRM Challenges

Organizations face several challenges in establishing effective TPRM programs:

• Resource Constraints: Demonstrating the cost of data breaches and the importance of TPRM can help secure additional resources.
• Lack of Visibility: Utilizing tools to scan the environment and centralize third-party information can enhance visibility.
• Inadequate Policies: Simplifying and clearly communicating TPRM policies can make management more feasible.
• Poor Understanding of Enterprise Risks: Starting with a third-party risk inventory can help identify significant risks and prioritize attention.

Leveraging Third-Party Risk Management Software

Purpose-built TPRM technology can revolutionize your approach by providing a centralized dashboard and inventory for managing third-parties and associated risks. To enhance your TPRM program, consider scheduling a demo of specialized TPRM software.

For a deeper dive into third-party risk management tactics and success factors, download the full guide here.

Frequently Asked Questions About Third-Party Risk Management

What are the guiding principles of TPRM?
TPRM involves assessing risks tied to each third party, performing thorough due diligence, and continuously monitoring performance and risk levels. Clear contracts and compliance with laws are essential, as is having a plan for addressing issues or breaches.

What are common TPRM program components?
Components include risk assessment, due diligence, structured onboarding, continuous monitoring, compliance, and detailed record-keeping. Regular reporting and a clear plan for addressing issues are also critical.

Where do TPRM gaps and obstacles present themselves?
Common challenges include resource constraints, visibility issues, poorly communicated policies, and a lack of understanding of enterprise risks. Solutions involve leveraging technology, simplifying policies, and enhancing resource allocation.

By following these best practices and utilizing the right tools, your organization can strengthen its TPRM program and safeguard against third-party risks.