What is Third-Party Risk Management (TPRM)?

Third-party data breaches are a growing threat to organizations. In fact, 51% of organizations have experienced a data breach caused by a third-party. With the consequences of such a breach including financial loss, investigations & lawsuits, damaged reputation, and loss of sensitive company information, effective third-party risk management (TPRM) is critical to the continued success of any organization.

Third-party risk management is often used interchangeably with other industry terminology, such as supplier risk management, supply chain risk management, vendor management, or vendor risk management (VRM). While definitions may vary slightly, “third-party risk management” and like terms describe the process of identifying and mitigating risk associated with the use of third parties. Third parties describe vendors, suppliers, partners, contractors, or service providers who provide products and services to customers on behalf of an organization and as a result have access to sensitive company and customer data.

Why is TPRM Important?

TPRM is a rapidly growing practice, mainly due to the increased reliance on outsourcing. Utilizing third-party services can maximize budget and business speed but giving third parties access to sensitive company data makes it crucial to consider their cybersecurity posture so that the relationship does not become a vulnerability. Partnering with a vendor with weak cybersecurity practices may leave your organization more vulnerable to a supply-chain attack, where systems are breached through a third-party with access to your systems and data. Hackers are attracted to supply-chain attacks because if widely used software can be compromised, the attackers can potentially gain access to other entities that use the same software, increasing the scale and impact of their attack.

Organizations are also becoming increasingly intertwined with a growing number of third-party vendors. Not only do today’s third parties require more access to the primary organization’s data assets, but they are also increasingly working with their own third-parties. This has exponentially increased the size and complexity of third-party networks, making it a critical challenge for organizational leaders to manage the risks associated with third-party networks with no hinderance to the efficiency, speed, and productivity of business. This growth has only made supply-chain attacks more attractive to hackers and further increases the risk associated with third parties.

Considering what is at stake, can an organization afford to take their vendors’ word when they self-report they are secure?

What TPRM Does:

Effective TPRM manages who is part of your third-party network, verifies that they are an active vendor, assesses their level of access, and confirms it is the appropriate level of access. A risk profile should be created for each vendor to make vetting vendors more consistent and increase the understanding of your third-party network. Once the risk each vendor presents is understood, proper controls must be in place to manage that risk. TPRM should also examine what would happen if the third party’s networks and data are compromised and how it might impact the principal organization should their confidential information be leaked.

TPRM should begin the moment a new vendor or supplier is onboarded and continue over the course of the business relationship, only ending when the relationship is completely dissolved. Effective TPRM also utilizes standardized processes and automation to maximize time and resources.

Benefits of TPRM Software:

Effective use of third-party risk software will enable organizations to implement a successful TPRM management program. TPRM software provides consistency and allows for the automation of risk management activities, which maximizes ROI, productivity, and results. Utilizing such software often leads to:

  • Increased data visibility and reporting capabilities through risk management dashboards.
  • Simpler assessments and audits.
  • Time and cost savings.
  • Improved vendor performance.
  • Decreased risk.

Learn how myCYPR can help your organization manage third-party risk by requesting a demo today.