Organizations increasingly rely on external vendors and partners. They no longer exist as single entities, but as a network of interconnected partnerships. While this offers a deep and highly effective supply chain, it also poses a serious challenge when trying to manage cyber risk.
However, this dependence introduces significant risks. Notably, 54% of organizations have experienced a third-party breach in the past year.
This alarming statistic underscores the critical need for robust third-party risk management (TPRM) to safeguard sensitive information and maintain operational integrity.
Third parties are one of the biggest threat vectors because of the unique set of challenges they present. These include:
- Different types of systems integration
- Dynamic asset and network environments
- Multiple processes to evaluate vendors
- Varying compliance requirements
- Communication around issues
- Constant change at both parties
Understanding TPRM is essential for protecting your organization against potential vulnerabilities introduced by third-party relationships.
What is Third-Party Risk Management?
Imagine handing over access to your most valuable data to an outside partner. Trust is essential, but what if that trust is broken? This is where third-party risk management comes in. It’s a strategy used by organizations to identify, assess, and control risks posed by their external vendors, suppliers, and service providers.
According to a report, approximately 29% of all data breaches involved a third-party attack vector. This highlights the urgent need for a structured approach to vendor risk. Third-party risk management ensures that organizations stay ahead of these threats by evaluating vendor security, enforcing compliance, and maintaining continuous monitoring. Third-party risk management companies, like FortifyData, can help organizations identify and understand third-party cyber risks and work with an organization to monitor and work with vendors to remediate those risks.
FortifyData’s Third-Party Risk Management Solution (FortifyTPRM) gives your organization a complete, user-friendly platform to identify, monitor, and manage cybersecurity risks linked to vendors, suppliers, subsidiaries, and other business partners. With customizable risk modeling profiles, you can tailor risk assessments for specific vendors or groups, making it easier to stay ahead of potential threats and maintain stronger, more secure third-party relationships.
Third-Party Risk Management Policy
A third-party risk management policy sets clear rules for how organizations manage risks from vendors, suppliers, and partners.
This outlines the organization’s approach to managing third-party risk, covering the entire relationship lifecycle. It details processes for identifying, assessing, and mitigating risks associated with vendors, suppliers, and contractors, including due diligence, risk assessment criteria, contract terms, ongoing monitoring, and escalation procedures to safeguard operations, security, compliance, and reputation.
It covers key areas like vendor onboarding, where due diligence and risk assessments are required before engagement, guidelines for service level agreements from the vendor, and offboarding. The policy enforces data security measures, ensuring vendors comply with specific standards – driven by government, industry or your specific organization – standards such as ISO 27001 or GDPR standards.
It also requires compliance with regulations like DORA and mandates ongoing monitoring of vendor performance. Lastly, it defines incident response steps to handle third-party breaches, ensuring quick action to protect the business.
Key Elements of a Third-Party Risk Management Framework
A third-party risk management framework provides a structured approach for identifying, assessing, and mitigating risks posed by vendors and external partners. Here are its key elements:
- Risk Assessment: Identify and evaluate potential vendor risks.
- Due Diligence: Conduct background checks and security reviews of vendors.
- Third-Party Risk Management Policy: Establish rules and procedures to manage and reduce vendor risks.
- Vendor Onboarding: Vet vendors before engagement to ensure security and compliance.
- Ongoing Monitoring: Continuously track and reassess vendor risks.
- Incident Response: Define steps to handle security breaches and data leaks.
- Regulatory Compliance: Ensure vendors follow regulations like GDPR, ISO 27001, and DORA.
Why Third-Party Risk Management Matters for Organizations
The importance of third-party risk management cannot be overstated in today’s interconnected business environment. Relying on third-party vendors exposes organizations to risks that could disrupt operations, harm reputation, or lead to regulatory fines.
Here’s why third-party risk management is essential for businesses:
- Data Protection: Third-party breaches account for 29% of all data breaches, making it critical to safeguard sensitive information.
- Regulatory Compliance: Ensures adherence to standards like GDPR, DORA, and ISO 27001, reducing the risk of fines.
- Operational Continuity: Prevents service disruptions by identifying and mitigating potential third-party failures.
- Financial Risk Reduction: Avoid costly breach-related expenses by proactively addressing risks before they escalate.
- Reputation Protection: Protects brand trust and customer loyalty by preventing public data leaks.
Given the rising frequency of third-party incidents, businesses must prioritize third-party risks in business to ensure operational continuity and maintain compliance. Proactive risk management protects revenue, reputation, and regulatory standing.
Steps to Implement a Third-Party Risk Management Program
Implementing a third-party risk management program requires a clear, step-by-step approach to identify, assess, and manage vendor risks effectively. Here are the essential third-party risk management steps to follow:
- Conduct a Risk Assessment – Identify potential risks posed by vendors, such as data breaches, operational delays, and regulatory non-compliance. Use risk scoring methods to categorize vendors based on their impact and risk level.
- Perform Vendor Due Diligence –Before onboarding, evaluate vendors through background checks, security audits, and financial reviews. Verify their compliance with ISO 27001, GDPR, and other industry standards.
- Develop a Third-Party Risk Management Policy – Create a formal policy outlining the rules and procedures for managing vendor risks. This policy defines roles, assigns responsibilities, and sets protocols for addressing risk-related issues.
- Onboard Vendors with Risk Controls – Establish onboarding procedures that require vendors to meet specific security, data privacy, and compliance criteria before entering into contracts. Use contractual clauses to enforce vendor accountability.
- Implement Ongoing Monitoring and Risk Reviews – Use tools and automation to track vendor performance, monitor compliance, and identify emerging risks in real time. Schedule periodic vendor reviews and audits.
- Set Up an Incident Response Plan – Create a clear process for responding to third-party-related incidents like data breaches or system outages. Define the roles, actions, and communication protocols for quick and effective response.
- Review, Audit, and Improve – Regularly review and update the third-party risk management program to ensure it adapts to changing business needs, new regulations (like DORA), and updated security best practices.
Third-Party Risk Management Reduces Risk to Organizations
Implementing a comprehensive third-party risk management program is no longer optional — it’s a business imperative. From vendor onboarding to continuous monitoring and incident response, each step plays a vital role in protecting your organization from costly disruptions, regulatory fines, and data breaches. You can also enlist the services of third-party risk management companies to help your organization identify, evaluate and reduce third-party risks.
Ready to take control of your third-party risk? FortifyData offers powerful tools and expert solutions to help you assess, manage, and mitigate third-party risks with confidence. Don’t leave your business exposed!
