What is Third-Party Risk Management?

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In the increasingly interconnected and complex world of business technology, many organizations are grappling with the challenges related to insecure integrations and agreements. The rise of technology service models, managed service providers (MSPs) and SaaS apps introduce compliance and risk management issues almost faster than businesses can keep up. 

Thus, a new discipline has evolved: third-party risk management. 

 

What Exactly Is a “Third-Party” and How Do They Introduce Risk?

The concept of a third party (or third-party vendor, or sometimes simply a vendor) suggests a business partnership. However, the increasing use of shared IT resources through third-party relationships has deepened some risks and challenges associated with third-party vendor relationships. 

Some of these risks and challenges include the following:

  • Security and Privacy: perhaps one of the biggest threats to company data is the threat of breach or disclosure. When working with a vendor, it is most likely the case that your data will pass through their systems, which inherently adds risk to the equation. A threat against the vendor is now your own threat. 
  • Scalability: Leveraging partners like MSPs can provide tons of flexibility to your organization, which can translate into scalability in critical operations or lines of business. However, it can also limit your strategic agility in terms of technology, as you can become reliant on an IT infrastructure outside your own. 
  • Compliance: Vendors dedicated to compliance in specific industries can make securing and protecting data much easier… but you are at their mercy when it comes to updates or non-compliance issues. 
  • Supply Chain Integration: If you have, or are part of, a digital supply chain, you’re essentially trusting your vendors to help you streamline your processes externally–in some ways, giving up control of aspects of your supply chain to others. In many ways, this can be a considerable benefit… but it can create suboptimal infrastructure in others. 

Security threats are perhaps the most well-known issues arising from vendor relationships. Over the past few years, we’ve seen several instances where companies using third-party cloud or security services have suffered catastrophic losses. Furthermore, these losses often translate into a cascading effect where other clients of affected vendors, in turn, expose their own customers to security vulnerabilities, and so on down the line, until it’s almost impossible to ascertain the extent of the damage truly. 

To address the issue, many enterprises engage in third-party risk management (TPRM) or vendor risk management (VRM) to address the specific challenges of third-party relationships. 

 

How Do Enterprises Enact Third-Party Risk Management?

Many organizations already implement risk management, typically focused on key areas like cybersecurity and finance. Third-party risk management simply shifts this thinking around the specifics of vendor relationships. 

A third-party approach will include strategic thinking around policies, procedures, and processes making up your vendor relationships like other risk management solutions. Comprehensive risk policies will usually include some combination of the following aspects:

  • A risk appetite statement that defines acceptable levels of risk with vendors. 
  • An inventory of individual products or services offered by vendors against that established assessment standard.
  • A clear understanding of compliance standards and regulations that will shape vendor relationships, including obligations expected from both parties (for example, a covered entity/business associate relationship under HIPAA regulations). 
  • A directory of potential vendors, including categories touching on how they might contribute to your organization and the risk they introduce. 
  • Regular risk assessments on the parts of both your internal departments and your vendors, documented and audited as necessary.
  • A program for evaluating vendor contracts regularly to determine necessary updates based on new regulations, security threats or technology changes. 
  • A continuous monitoring program to assess qualities of third-party capabilities (such as security, compliance and stability), and reassess relationships regularly.

 

What is the Third-Party Risk Management Maturity Model?

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While these aspects are important for healthy and secure vendor risk management, it’s not the case that most organizations are ready to deploy resources towards achieving their goals immediately. In fact, many enterprises may have only a cursory understanding of the necessity of vendor risk management as something they should incorporate into their IT strategy. 

With this fact in mind, companies must pass through several stages to reach mature risk management. Several potential maturity models can help guide these organizations towards effective TPRM. 

Generally speaking, many of these maturity models will include the following stages:

  • No Third-Party Risk Management: As the name suggests, the organization has no third-party vendors or does not perform risk management related to vendor relationships.
  • Ad Hoc TPRM: The company has begun looking to risk and vetting vendors, but not with any specific strategy or orientation. There isn’t a meaningful structure around these activities at a company-wide level.
  • Ad Hoc with a TPRM Roadmap: Like the previous approach, but with the added feature of a TPRM roadmap to direct future policies and risk management systems implementation. 
  • Defined and Established: The enterprise has a defined and established TPRM policy, but is currently fully implementing it. This means that some rollout has occurred, but the full deployment of processes has not been accomplished yet.
  • Implemented and Operational: The roadmap is in full effect, metrics are being measured and compliance has been accomplished across the company.
  • Continuous Improvement: The company has implemented the measurement of metrics, assessments based on metrics, and policies around improving TPRM practices across the organization. 

 

Managing Risk, Tailored to Your Organization, with Continuum GRC

Compliance and cybersecurity are critical aspects of third-party risk management. Without a clear vision of cybersecurity regulation and how vendor relationships open your organization to risk, you may be placing your data and the data of your customers in the line of fire when it comes to cyber threats. And, that’s not to mention the criticality of assuring your clients and customers that all your infrastructure, even that managed by others, is a security priority. 

Continuum GRC is proactive cyber security®, and the only FedRAMP ans StateRAMP Authorized cybersecurity audit platform in the world. Call 1-888-896-6207 to discuss your organization’s cybersecurity needs and find out how we can help your organization protect its systems and ensure compliance.

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