What Is Third Party Risk Management?

Third Party Risk Management (TPRM), also known as Vendor Risk Management (VRM), is the process of evaluating and then reducing the risks delivered on by vendors (suppliers, third parties, or business partners), both before and during sustainable growth.

Why is Third Party Risk Management important?

Third party management is important because unresolved Third Party risks can put a business at risk for data breaches, supply chain disruptions, and cybersecurity threats that could harm its brand. Risk management is becoming more and more of a regulatory need to safeguard against dangers brought by third parties.

Who is considered a Third Party?

A Third Party, often known as a vendor, is a company or business with whom you have the arrangement to deliver goods, services, or both on behalf of your company. Third parties are those to whom you outsource or subcontract. Your business depends on its goods and services for producing, running its business, and/or providing your final good or service.

Third-Party Risk Management in Five Steps

Identify - Identifying the organizations you do business with that might provide any form of risk is the first step. Understanding the third-party system is essential.

Classify - Using a risk-based strategy, you must determine the level of risk that each third party impose to your company based on the data, system access, and service offered.

Assess - Following that, you must assess the security posture of third-party vendors with whom you do business. Depending on the structure of your firm, you will have varied levels of confidence based on third-party risk.

Manage Risk - The procedures to implement policies are outlined here, and you'll also choose how to handle remediation. You are essentially deciding whether to take risks or not.

Monitor - The final phase requires extended of third parties to make sure they maintain their security posture and fulfil scope of work.

What are the common types of Third-Party Risks?

Third-party vendor risks can take numerous forms. In order to properly evaluate and categorize threats, it's crucial for businesses to have a strong understanding of the risks that a vendor might present. This makes sure the right actions are performed to reduce the risks more likely. The different types of vendor risks:

Operational risk - If a third party offers a technology necessary for ongoing business operations, there may be possible operational risks. If the third-party suffers a cyber-attack that disrupts the service, your organisation may experience a service disruption.

Reputational risk - While operational risk refers to your company's ability to continue providing a service or product to clients, reputational risk refers to how customers perceive your organisation. If your third-party faces a data breach, your organisation may experience a loss of client confidence or loyalty as a result.

Compliance risk - As increasing industry standards and regulations include third-party vendor risk as a compliance requirement, you must verify that your organization's risk tolerance is also applied to your third-party business partners.

Financial risk - When working with third-party providers, there are two major types of financial risk which are high prices and lost revenue. This risk emerges when providers fail to meet your organization's financial performance objectives. Knowing which vendors directly affect sales or revenue is essential because systems used to monitor sales activity present an extra security risk.

Strategic risk - When a vendor and your company don't agree with the same strategic goals and business decisions, there is a strategic risk. To make sure that strategic risks don't result in regulatory, financial, or repetitional risks, it's important to continuously check your third-party providers.

Conclusion

Third-party risk management procedures are a continuous process that begin with the options to involve a third party in a business and then proceed to discover and analyse your risks, offer protection, and monitor the connection, which could change the evaluation results at any time. However, monitoring vendors and other third parties may tend to be a challenging, the implementation of a strong Third Party Risk Management plan can assist improve overall effectiveness and create full control for third party monitoring.