Third-party risk management, or TPRM, is a critical part of keeping your company’s and customers’ data safe. As part of a comprehensive governance, risk, and compliance plan, proper TPRM helps you control your data and remain compliant with privacy laws while protecting your company as a whole.
Effectively implementing third-party risk management strategies isn’t always easy. Companies today face a myriad of third-party risk challenges when it comes to successfully implementing TPRM. Properly managing it requires your company to have a clear strategy for the selection, approval, and ongoing monitoring of your third-parties. Below are just a few of the challenges your organization might face as you build out a program.
Challenges of Implementing Third-Party Risk Management Alone
Creating a successful third-party risk management program from the ground up involves making hundreds of decisions. It also requires that your company be prepared to take on the task of individually monitoring every other organization to which it’s connected. A few of these challenges include:
During the process of vendor onboarding, you need to make some immediate decisions. How much risk do you feel the vendor may pose to your company? The more critical a given vendor is to your business, the more risk you take on if you don’t perform your due diligence when onboarding. Tiering your vendors allows you to judge how deeply you need to investigate them before and during onboarding.
There are three steps to tiering your vendors’ risk levels:
- Define your risk tiers. You can use a number system or outline risk divisions such as “Low,” “Medium,” “High,” and “Critical.” Each of your vendors will fall into one of these divisions. A vendor in the “Low” risk tier doesn’t require the same amount of due diligence as “Critical” vendors.
- Create an inherent risk questionnaire. This is a list of questions that line-of-business users can ask themselves about prospective vendors to judge the potential risk. An excellent example of an inherent risk questionnaire can be found in the ProcessUnity Third-Party Risk Management Best Practices whitepaper.
- Build your scoring system. To use an inherent risk questionnaire effectively, assign each question a certain number of points. For example, answering “Yes” to a question like “Is this vendor essential to the company’s function?” might be worth 10 points. An affirmative response to “Does this vendor outsource aspects of its business?” might be worth only two. You can also assign each risk tier a point range: Low-risk companies might score a four or lower on the questionnaire, while critical companies score a 12 or higher.
Tiering your vendors gives you a clear idea of which ones carry the most significant risks, helping you focus your due diligence more effectively.
Engaging the Business
From line-of-business users to executives, having other company members work together on the third-party risk management process can ensure that they don’t miss any small details or misjudge risk. The challenge is getting them engaged and invested in the process in the first place. Effective engagement helps you tier your vendors accurately and ensure that your business is protected from as much risk as possible.
To properly vet your vendors, you need to store and organize data about them. Following best practices for data storage and organization in third-party risk management can be a challenge of its own.
Many companies rely on spreadsheets and email to coordinate their vendor data. Not only is this a difficult way to track vendors across departments, but it can also cause you to lose sight of the bigger picture. A centralized, automated vendor data storage solution can help your company coordinate across departments and avoid having to vet the same vendor multiple times.
Finally, if you’re going through the process of third-party risk management, security is clearly a priority. However, once you’ve begun, it can be unclear where to draw the line.
At what point do you stop investigating vendors? Do you vet the fourth-party vendors that your vendors use? Do you go a step further and investigate fifth parties as well? If you need a certain level of security, you may need to continue to investigate that far. And depending on the risk level of a vendor, the depth of your investigation may change.
IT Security company SecurityScorecard recommends utilizing continuous monitoring to assess third-parties beyond point-in-time assessments: “Many times, the information gathered by security risk assessments is outdated by the time it falls into your hands. The speed at which hackers are developing new attacks and exploiting vulnerabilities is too fast for point-in-time assessments or annual reviews to provide any insight into the real security posture of a vendor.”
Future TPRM Hurdles
Managing third-party vendor risk and engaging in best practices will not get easier. In fact, it seems clear that the future holds more challenges for third-party risk management than ever. Consider the following:
Expansion of Third- and Fourth-Party Vendors
The expansion of the internet and technology companies has been excellent for business in many ways. When it comes to third-party risk management, however, the growth has caused problems.
As more opportunities arise to outsource company departments and services to other vendors, the number of organizations you must vet grows dramatically. Companies work with more third- and fourth-party vendors than ever before. To effectively manage third-party risk, you may now need to vet thousands of vendors, whereas previously, you only needed to vet hundreds. Having a plan for managing fourth-party risk within your vendor risk management program is essential to understand the potential network of risk within the extended enterprise.
Growth of Cyber Risk
Another side effect of the internet age is the birth and growth of cybercrime. The internet has provided a whole new field for people with malicious intent. Just one aspect of this is the exponential increase in hackers and malicious actors whose goal is to harm businesses for their own gain. This puts companies at more risk than ever and makes third-party risk management both more difficult and necessary.
To protect consumers, governmental and professional organizations are constantly creating new regulations about data, privacy, and risk management. Current regulations are evolving as well. Implementing TPRM requires that you stay up to date on all of these changes and consider them every time you onboard a new vendor. Failing to do so not only puts your company at risk of crime or data breaches, but it could also lead to fines.
The Weight of Due Diligence
All of these regulations, risks, and interconnectivity aren’t just hard on your company. Vendors themselves are starting to buckle under the weight of the sheer volume of due diligence requests. While it’s their responsibility to respond to these requests, it’s just as crucial that your company makes the request simple to fulfill. Due diligence processes should be tailored and streamlined to avoid vendor fatigue.
Third-Party Risk Management Best Practices
Every modern organization, no matter what size, should pay attention to third-party risk. To do that effectively, you need to develop an efficient program in advance or work with a third-party risk-management program expert. That’s why a good strategy and an automated vendor risk management tool are so critical.
The good news is that you don’t need to do it alone. For help addressing these challenges and more, read the ProcessUnity whitepaper; Expert Guide: Third-Party Risk Management Best Practices. This guide outlines the best approach for implementing a successful risk-management plan for today, tomorrow, and beyond.