As organizations navigate a changing risk landscape, having an established culture of governance and compliance is crucial for successful third-party risk management (TPRM). To move toward TPRM program maturity, organizations need to consider their strategy for:
Let’s take a closer look at each topic…
The term “third-party risk management” is sometimes used interchangeably with vendor risk management (VRM), supplier risk management, or supply chain risk management.
TPRM frameworks equip organizations to understand the third parties they work with, how they use them, and what risk mitigation measures are in place. Internally, a management framework ensures that all employees involved in third-party risk management are collaborating with the same data, information, and processes. It also allows stakeholders to understand their roles, expectations from senior management, and the potential consequences of a breach or violation.
The scope and requirements of third-party risk management processes depend on the organization and also vary by industry, regulatory mandates, and other factors.
Most organizations rely on third parties to keep operations running smoothly. Outsourcing has become an inevitable component of running a modern business to stay competitive and access global talent. But when your third parties, vendors, or suppliers can’t deliver, there can be devastating and long-lasting consequences.
Disruptive events related to third-party risk and security can impact businesses regardless of size, location, or industry. Particularly for organizations that don’t have a proper TPRM program in place, insufficient oversight of vendor relationships can leave your critical processes and data vulnerable.
Furthermore, data breaches and other cybersecurity incidents have become routine. More than 50% of organizations have experienced a data breach caused by a third party, with 44% having been the victim of a breach within the last 12 months, according to a recent report.
Whether your organization is just beginning to make TPRM a priority or is taking steps to mature an existing program, implementing best practices throughout the vendor management lifecycle can help you design a better governance, risk, and compliance (GRC) architecture.
When developing a TPRM or VRM program, many organizations focus on cybersecurity risk mitigation while neglecting the interconnectedness between third parties and other operational risk areas. A well-designed third-party risk management framework should extend beyond security concerns to consider risk areas including:
Too often, organizations fail to achieve this level of integration because they’re bogged down by siloed thinking, where different departments have their own standards and processes for managing vendor relationships.
A check-the-box, bare-minimum management approach leaves teams with disconnected processes that hinder their ability to adapt to a changing third-party risk and compliance landscape.
Preventing this scenario requires a unified, comprehensive TPRM program with clearly defined governance standards. Your organization may have some areas that are managed well at a department level and can be leveraged to mature TPRM processes in other business units. But the next step toward maturity is developing a common governance model for managing third-party risk and breaking down data and process silos.
When organizations look at TPRM as an essential function rather than a series of requirements, they begin to transition from a reactive approach to a proactive, adaptive, and systematic program. Moving toward a state of maturity directly impacts your institution’s bottom line in both time saved and efficiency gained.
Furthermore, an agile, technology-enabled program supports the overall third-party management strategy and broader business objectives, equipping your organization to effectively communicate, assess, and report on risk extended throughout the enterprise.