Purpose
Safeguarding the future.
The rise of third-party relationships
In today's interconnected world, no organisation works alone. Organisations often depend on other organisations for products, services, or support. This could be anything from getting parts from a supplier to using software from a technology company.
Third-parties are all external parties that you do business with or have some formal involvement with. So these are your vendors, suppliers, service providers, business partners, joint ventures, alliances, distributors, resellers, agents, contractors, and many more.
But when we rely on these third parties, there are risks involved. What if these third parties run into problems? Maybe they cannot deliver what you need on time, or they have a security issue with their software. These problems can affect your organisation too. That is where third-party risk management (TPRM) comes in. It is all about understanding these risks and taking the right measures to mitigate them.
Why we started 3rdRisk
3rdRisk was founded to tackle the growing challenge of managing an increasing number of third-party relationships in today's organisation. In recent years, organisations have shifted from working with a few hundred third-parties to thousands, significantly raising the complexity and risk levels. This change has made it more difficult for risk and compliance teams to stay in control.
Despite these changes, most risk management efforts are still focused internally, with teams using methods that mostly address risks within the organisation. Current technology and processes for handling third-party risks are often outdated and inefficient, relying heavily on manual work and stand-alone technology point solutions. Although GRC-solutions helped manage internal risks, the current reliance on third-parties for significant operational processes calls for a more integrated, collaborative and fit-for-purpose platform.
Why TPRM?
The purpose of third-party risk management is all about safeguarding your organisation and maintaining trust. Here is what it aims to do:
#1. Reduce incidents
By carefully managing third parties, the goal is to lower the number of incidents like security breaches or supply chain disruptions.
#2. Increase trust
Showing that you are effectively managing third-party risks boosts confidence among stakeholders, from investors to customers.
#3. Ensure compliance
It helps ensure that both your business and your third parties comply with relevant laws and regulations, avoiding legal complications.
#4. Protect reputation
By managing risks proactively, you protect your company's reputation from the potential negative effects of third-party actions.
#5. Enhance resilience
It contributes to the overall resilience of your business operations, ensuring continuity even in the face of external challenges.
#6. Mature your ecosystem
By engaging in effective third-party risk management, you are also helping your third-party partners grow and mature.
TPRM insights
Based on years of experience, we have compiled a list of seven key insights regarding third-party risk management.
#1. TPRM is a multidisciplinary challenge
A third-party risk is any potential risk that arises from dealing with third parties. These risks can come in many forms, as you can see from the examples below:
- Cybersecurity risk: Breaches or cyber attacks originating from or affecting the third party.
- Compliance risks: A third party’s failure to comply with legal requirements could impact you.
- Operational risks: A third party’s performance or reliability could disrupt your organisation.
- Financial risks: Financial losses that could occur due to a third party’s financial instability.
- Sustainability risks: Human rights violations or environmental damage from a third-party.
- Reputational risks: Actions or misconduct of a third party could impact your brand.
Managing the risks at these third-parties is what we call third-party risk management (TPRM). It is a multidisciplinary risk discipline that is completely dedicated to risks and compliance requirements that are associated with third-party relations. TPRM involves activities like determining the risk profile of third-parties, performing self-assessments, monitoring risks in real-time, remediating issues and reporting on them to internal stakeholders and regulators.
#2. TPRM is more than checking ISO and SOC-2 reports
Simply verifying whether an organisation possesses an ISO certification or a SOC report frequently falls short of obtaining a comprehensive view of third-party risk. While these certifications and attestations are important indicators of an organisation's commitment to maintaining certain standards in security and operational procedures, they do not encompass the entirety of risk factors that may impact a business relationship.
ISO certifications and SOC reports focus on specific aspects of an organisation's operations, such as information security management systems (for ISO 27001) or the effectiveness of controls related to financial reporting (for SOC 1) or security, availability, processing integrity, confidentiality, or privacy (for SOC 2). However, these assessments are performed at a point in time and may not reflect ongoing changes or the complete picture of an organisation's risk posture.
Comprehensive third-party risk management should include a broader evaluation that encompasses not only these certifications but also other crucial factors such as the third party's financial health, compliance with other relevant regulations, ethical standards, and their overall resilience to emerging threats. It should involve continuous monitoring and assessment to capture any changes in the third-party's operations that could introduce new risks.
#3. TPRM is not a one-time exercise, but an ongoing process
Third-party risk management is an ongoing process, not a task that can be checked off a list after a single effort. Risks associated with third-party relationships can evolve rapidly. New threats emerge, regulations change, and the operational and financial stability of suppliers can fluctuate. This dynamic environment necessitates a continuous and proactive approach to managing third-party risks.
To effectively mitigate these risks, organisations must regularly review and update their assessments of third-party partners. This includes not only re-evaluating the security and compliance postures of these entities but also monitoring their financial health, operational performance, and adherence to contractual obligations. Fit-for-purpose technology can aid in this process, offering real-time insights and alerts about potential risks.
#4. TPRM is also relevant for smaller organisations
Third-party risk management is a critical concern not only for large organisations but also for small and medium-sized enterprises (SMEs). The misconception that only large entities need to be vigilant about their third-party relationships overlooks the interconnected nature of modern business ecosystems. In fact, SMEs, with their often-limited resources, may face even greater risks from third-party vulnerabilities, as they might lack the robust internal controls and risk management frameworks of larger corporations. See also the business case for third-party risk management and using our technology.
#5. TPRM does not have to be labour-intensive
Third-party risk management does not necessarily require an exhaustive allocation of resources or time. With the advent of fit-for-purpose third-party risk tooling, the process can be streamlined, making it both efficient and less labor-intensive. By leveraging specialised third-party risk software solutions, organisations can automate the majority of the risk assessment and monitoring processes. These tools are designed to simplify data collection, analysis, and reporting, thereby reducing the need for manual intervention and significantly cutting down on the time and effort required to manage third-party risks.
#6. TPRM is more than checking your suppliers’ risk ratings
Third-party risk management extends well beyond simply reviewing your suppliers' security ratings. Conducting comprehensive third-party due diligence assessments is crucial for gaining a deeper insight into potential risks. Furthermore, it's worth noting that security rating providers frequently fall short in offering effective and efficient workflows, which are essential for ensuring that both your organisation and your suppliers promptly address and consider any identified issues and risks. This proactive approach is key to mitigating vulnerabilities and safeguarding against potential threats.
#7. TPRM and spreadsheets are not a good match
Many organisations are recognising the limitations of traditional spreadsheets for managing third-party risks. These rudimentary tools, while familiar, are proving to be inadequate for the complex and dynamic nature of third-party risk management. Spreadsheets lack the capability to provide real-time insights, automate workflows, and ensure data quality and integrity. Moreover, they demand considerable manual work and are generally unpopular with your suppliers.