Your 10 Points Guide on Third-Party Risk Management

Your 10 Points Guide on Third-Party Risk Management

Third-party risk management (TPRM) is a form of risk management that identifies and reduces risks related to third parties. Businesses collaborate with third parties to complete their operations efficiently, including vendors, suppliers, partners, contractors, or service providers. However, these external agencies may pose certain risks to businesses; therefore, risk management is essential. It exposes organizations to supply chain attacks, data breaches, and reputational damage. In simple terms, TRPM is the overarching discipline that encompasses all types of third parties and risks, majorly supplier risk management.

Ten Essential Steps Taken by the Organization to Streamline the TPRM Program

  1. Risk Appetite Statement – This statement portrays the amount and type of risk that an organization is willing to take to meet its objectives. The risk appetites vary from business to business. To define an organization’s risk appetite, developing a risk appetite statement is better. An organization can create simple and practical risk appetite statements that are closely associated with the business goals. By this, an organization can avoid issues related to IT decision-making.
  2. Types of Risk Associated– There are two common risks associated with TPRM. The two risks associated are ‘inherent’ and ‘residual’ risks. Inherent risk is the untreated or potential risk with no control. These risks classify vendors based on their criticality. The residual risk is the potential risk that remains in place only after the security controls are established and is one of the critical metrics for any TPRM program.
  3. Choice of Organization’s Standard or Framework– The organization should set standards based on the internal risk program. It also depends on the related industry, region, and other contributing factors. Usually, many organizations will set a standard and then customize it to meet their requirements. Some of the most common standards or frameworks used to assess the third party are National Information Standards Organization (NISO), Cloud Security Alliance (CSA), International Organization for Standardization (ISO), etc.
  4. Risks Classifications– Understanding the risks associated with an organization is essential. There are many different types of risks to consider when you set up your company’s TPRM program. Companies often classify risks to get a better report on the potential threats or risks associated with third parties. The common risk classifications include reputational, geographical, political, financial, privacy, compliance, cybersecurity, transactional, performance, industrial, and operational risks.
  5. Know Your Third Parties– There are several ways to discover your third parties in an organization. This process is time-consuming, but there are particular tactics to streamline it. Many organizations maintain their list of service providers in a database or spreadsheet. The organizations can use this information to know the third parties and analyze the risks associated. Organizations can identify existing service providers by looking at the existing technologies like CMDBs, SSO providers, contracts, and other tools. By having a self-service portal, you can enable the business to help build your inventory. Lastly, an organization can conduct internal assessments or interviews to identify the third parties.
  6. Classify Your Third Parties– It is important to classify your third parties, just like how you classify a company’s risks. Classifying third parties helps streamline your TPRM program, enabling you to direct your focus to third parties that present most of the risks. Usually, to classify third parties, companies usually determine their vendors’ inherent risks. Organizations send a questionnaire to the TPRM team to determine those risks to bucket vendors into tiers.
  7. Performance Assessment & Risk MitigationРAssessing the performance of the organization and risk mitigation of the third party plays a vital role. This process takes time and resources intensively. Because of the evolving technology, many TPRM programs are taking advantage of new trends and technologies in the market. The primary goal is to understand what controls a vendor has in place. Third-Party Risk Assessment becomes quite essential. When controls are established, risks can be calculated and mitigated accordingly. Common risk mitigation workflows include identification, evaluation, treatment, and monitoring.
  8. Manage Key Contract Terms & Clauses– Contracts are often lengthy and detailed, which may be outside the realm of TPRM. But still, there are key provisions and terms that TPRM teams should look out for when reviewing the contract. Some of the clauses and terms include a relationship clause, service clause, price and payment terms, confidentiality clause, term and termination clause, Service level agreement, and compliance clause. Many TPRM professionals extract key terms in a structured format to determine if the critical contractual clauses and terms are adequate or inadequate. This structured method makes executive-level reporting possible and offers more clarity to the contracts.
  9. Generation of Reports & Maintaining Records for Compliance– To build a strong TPRM program, organizations must maintain proper and adequate records for compliance. This step should be carefully overlooked as it is one of the most significant aspects of a good TPRM program. Maintaining these records in excel or spreadsheet is impossible at scale. Therefore, the organization uses TPRM software to automate record-keeping in a detailed manner. With detailed records, it becomes much easier for an organization to report on things. Thus, reports are generated by the TPRM software.
  10. Monitor Changes Over Time – The TPRM has to monitor changes that include vendor, market, and regulation changes over time. With the new regulation, emerging threats, database breaches, and evolving standards, organizations must monitor all these new changes over time. Therefore, it becomes necessary for organizations to monitor third-party risk. Risks drastically change over time; however, assessing and taking a glimpse of risk posture is crucial. On the whole, it helps in controlling and monitoring regulatory changes and market changes.

Takeaway

The TPRM in a company monitors and manages interactions with all the external parties with which it has a relationship. It might include both contractual and non-contractual parties. TPRM practices are universal and applicable to every business, regardless of size. However, for a seamless implementation of TPRM, you need an expert agency. ComplyScore is the leading provider of TPRM and other risk management solutions for businesses worldwide. To know more about their services, visit https://complyscore.com/.