6 Steps for Effective Third Party Risk Management

Effective Third Party Risk Management

Nowadays, almost all businesses outsource some parts of their operations to third-party vendors.  While this does make working convenient, it also comes with risks. Businesses must continuously ensure that the third-party vendors remain a strength for the organisation and do not become a weak link.

In fact, Hyperproof’s 2023 IT Compliance Benchmark Report stated that 38 percent of businesses experienced privacy and data breaches from third-party vendors. Moreover, the same report also found that 48 per cent of businesses suffered from compliance violations due to their own oversight of third-party vendors.

Working with third-party vendors can be risky as you are trusting a business whose processes and practices are out of your control. This is where third-party vendor risk management comes into play. These services offer a structured approach to identify, assess, and reduce the risks to your business.

In this blog, we will guide you through five key steps that can significantly strengthen your defences against the potential pitfalls of third-party engagements. 

But before exploring the guide, let us understand the concept of third-party risk management properly.

What is Third-Party Risk Management?

Third-party risk management, also known as TPRM, assesses and controls the risks that are connected to third-party service providers or vendors. 

Third-party vendor risk management is an activity you can conduct in your organisation to understand how much risk are you willing to take if you want to outsource a particular project or a part of the operation to a third party.

6 Steps That Can Help You With Effective Third-Party Risk Management

There is no universal approach when it comes to third-party vendor risk management. What works for large corporations won’t certainly work for small and medium enterprises. Having said that, there are some elementary steps that all organisations, regardless of their size and structure, can consider to reduce vendor risks.

Let’s see in detail what these steps are.

#1 Revise Your Data Map To Include Third-Party Vendors

Your third-party risk management strategy should begin with a comprehensive data map that accounts for all consumer data accessed by your vendors. 

Understanding the specifics of your vendors’ data access and usage is crucial for establishing appropriate agreements and requesting necessary compliance details from each vendor.

#2 Create A Standard Method For Evaluating Third-Party Risk

Your organisation should establish a clear framework for third-party risk assessment before starting your search for vendors rather than evaluating them one by one. 

This framework would work as a guide, outlining the process for managing vendor risks and providing a step-by-step approach for senior management across various departments. It should detail the daily responsibilities of managing vendor risk to ensure nothing is missed.

Additionally, it’s important to align with your company’s compliance policies and ensure that any potential vendor can meet your company’s standards.

#3 Establish a Clear and Transparent Vendor Onboarding and Offboarding Process

Similar to how new employees go through an onboarding process to learn about your company’s policies, it’s crucial to have a consistent onboarding procedure for your vendors. This process should ensure that vendors know and agree to follow your information security standards and policies.

For example, if a vendor intends to have their staff work on your projects using personal devices, it’s important to clearly outline your policies regarding “bring-your-own-device” (BYOD) and specify which data can and cannot be stored on these devices.

#4 Assess The Security Ratings

Using security ratings enables real-time monitoring of both your vendors and their suppliers’ security standings. 

These ratings can simplify the third-party vendor risk management process for organisations that rely on numerous vendors. It can keep track of shifts in security practices and facilitate addressing critical vulnerabilities with vendors that pose a high risk. 

#5 Begin Using Your Framework Without Waiting For Perfection

It’s normal for compliance and data security initiatives to require ongoing refinements, modifications, and enhancements as ineffective processes are identified, new risks emerge, or new privacy regulations come into effect. 

Therefore, don’t delay deploying your vendor security framework in search of perfection – start now and commit to regular evaluations and enhancements.

#6 Be Careful While Implementing a Vendor Selection Procedure

Before choosing a vendor, it’s essential to have a thorough vetting process ready. This helps your organisation select the most suitable third-party vendor. However, making what seems to be the right choice should be viewed as just the beginning, not the final decision. 

Throughout this vetting phase, factors to consider include comparing potential vendors with their competitors, sending out requests for proposals (RFPs), and conducting due diligence activities like performing a risk assessment as required by your organisational policies.

Final Words

It’s worth reflecting on the significant advantages of working with a reputed third-party vendor risk management software provider. 

Such a partnership strengthens your strategies and aligns with the local business landscape, ensuring you’re well-equipped to navigate the complexities of vendor risks.

Work with a seasoned vendor risk management software provider to tailor a solution that meets your unique needs. Reach out today—let’s make it happen.