Third-Party Risk Management is the process of identifying, managing and mitigating risks present in a vendor relationship. This form of risk management helps organizations ensure that their vendors (often referred to as suppliers, partners, third parties or service providers) add value without threatening business continuity.
Poor vendor management and working with risky third-party vendors increase the likelihood of a data breach, potentially negatively impacting an organization’s revenue, reputation and legal compliance—all of which can set a company back for a long time. Third-Party Risk Management helps organizations understand their vendors to make informed decisions about appropriate security controls.
Third-party risk management is the most commonly used term for this practice, but vendor risk management and supplier risk management are often used interchangeably. Third-party risk management processes are unique to every organization based on industry focus, vendor population size and program resources.
Why Implement a Third-Party Risk Management Program?
Globalization has created a dependence on critical activities outsourced to an increasing number of partners and vendors; this in turn has fueled a dramatic rise in the third-party ecosystem. It’s highly likely that your company now outsources significant aspects of its business to outside providers. With outsourcing an unavoidable part of business, vendors have access to your intellectual property or to sensitive customer information.
Recent events such as the COVID-19 pandemic and SolarWinds hack demonstrate how easily disruptions can have a cascading effect throughout the supply chain. With significant security compromises making headlines, most organizations require vendors to abide by their internal standards and governmental regulations surrounding privacy and security.
A vendor risk management program is a formal way to evaluate, track and measure third-party risk, assess the organization’s risk appetite, and develop vendor controls to lessen the impact on your business should an incident occur. A third-party risk management program provides consistent workflows for vendor monitoring and risk reporting over time.
Managing vendor risk is an ongoing process. As your company embarks on or advances this process, you want to ensure that the information you gain is used to advance your program, strengthening the organization and its relationships.
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What are the Basic Steps of Third-Party Risk Management?
The basic workflows in a third-party risk management program align with the third-party lifecycle. Though it varies across each organization, the process is typically owned by a Chief Information Security Officer (CISO), Chief Procurement Officer (CPO) or Chief Risk Officer. Other departments involved may include Legal, Information Technology and Information Security.
The phases of the third-party lifecycle include:
Vendor Onboarding: Prior to entering a third-party relationship, your organization will need to collect as much information as possible about the vendor. Organizations may choose to integrate intelligent vendor identification data to streamline this process, collecting information such as:
- Security certifications
- Relationship contacts
- Security practices
- Criticality of shared data
- Relationship scope
This information can be leveraged to classify vendors based on their inherent risk, informing the scope and frequency of vendor risk assessments, reporting and due diligence. Establishing criticality tiers for vendors allows organizations to monitor the riskiest vendors throughout the vendor lifecycle.
Vendor Due Diligence / Vendor Risk Assessments: Vendors need to be constantly assessed within the context of evolving regulations and changing practices. Organizations take several approaches to this process:
- Vendor Assessment Questionnaires: Targeted vendor questionnaires determine vendor risk against a set of “preferred responses,” standards set by your organization or other regulatory bodies.
- Onsite Control Assessments: Tangible proof of your vendor’s security controls can reassure your organization that critical data is maximumly protected. Onsite control assessments allow the organization to gain visual verification of a vendor’s security practices.
Ongoing Vendor Monitoring: Keeping tabs on a vendor with ongoing monitoring practices allows the organization to stay ahead of risks. After all, a vendor risk assessment is merely a snapshot in time that can’t account for how risk might evolve. Organizations need to look out for the effects of potential changes, such as acquisitions, regulatory changes and industry developments. Third-party risk can be continuously monitored with the following practices:
- Due Diligence Questionnaires: Vendor questionnaires tailored to an organization’s specific concerns can reveal risks as they evolve.
- Vendor Performance Reviews: Regular evaluation of how a vendor meets contractual obligations provides insight into KPIs and other important metrics.
- SLA Tracking: Monitor and track the progress of Service-Level Agreements (SLAs) as the vendor relationship progresses.
Vendor Risk Reporting: Proving compliance and risk mitigation is a critical function of an effective third-party risk management program. Organizations achieve this by compiling data collected throughout the vendor risk lifecycle into reports. Vendor risk reports aid in building program maturity and gaining board-level support. A typical report includes information on:
- Risk trends over time
- Vendors by criticality
- Vendor contract progression
- Vendor risk assessment progression
- Issue response
Vendor Issue Management: The ultimate goal of any third-party risk management program is to mitigate risk with security measures. Organizations prepare for incidents by implementing vendor controls at the onset of the relationship based on the vendor’s criticality. These controls may be adjusted as third-party risk evolves or incidents necessitate it.
Benefits of Automated Third-Party Risk Management Software
By automating vendor onboarding and streamlining vendor due diligence, organizations can save hundreds (or thousands) of hours, redirecting them to more critical tasks.
Consider these benefits of implementing an intelligent, automated Vendor Risk Management tool:
- Consistency: Often, there are five or more stakeholder groups involved in vendor onboarding. An automated third-party risk management tool keeps them all on track, in real-time, with a predefined workflow.
- Speed: Aspects of a program – vendor risk assessments, vendor performance management, etc. – can take significantly longer than they should in manual processes. Automation dramatically reduces this time, freeing up your team to perform other tasks.
- Scalability: As an organization grows, the number of vendors does too. Growth should feel rewarding, not punishing – a tool will help scale to more vendors without adding extra tasks to a vendor risk manager’s plate.
- Clean data: To protect the data shared with vendors, monitor threats and keep track of records, risk managers need a way to keep this data clean and accessible. Automated tools help facilitate better data visibility through reports and dashboards, allowing your organization to make better decisions.
- More Trust: Relationships are all about trust. Proving that customer data is protected with a robust third-party risk management program helps build consumer confidence in your brand. Additionally, automation helps strengthen your vendor relationships by providing much-needed visibility into their security practices.
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Make Your Job Easier with Third-Party Risk Management Automation
As seen from statistics on data breaches and vendor vulnerability, the need for quality third-party risk management is on the rise, and it will continue to grow as more incidents arise. The emerging complexities of third-party data and vendor due diligence require better processes. The best strategy for organizations to streamline these processes is to adopt an automated third-party risk management tool.
ProcessUnity can help. Learn how ProcessUnity Vendor Risk Management can streamline and automate all of your third-party risk activities while ensuring compliance and reducing costs. Schedule a demo with one of our subject matter experts today.
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