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82% of companies give external vendors highly privileged access to their sensitive data. There are various reasons why a company may make this choice. However, no matter the reason, giving external providers system access increases your cybersecurity risk. Therefore, it’s important to establish a third-party risk management framework.
John Unger, President of Vaultas, explains that “Cybersecurity risks are operational risks. Information security incidents also slow down your workflow and hurt your bottom line, alongside compromising confidential information. It’s crucial to be aware of risks from every source, including your vendors.”
That’s why this blog post will explore:
- What a third-party risk assessment is
- How to plan your third-party risk management (TPRM) program
- How to conduct a vendor risk assessment
- How to choose secure vendors before beginning a relationship
What is TPRM (Third-Party Risk Management)?
Third-party risk management (TPRM) is the process of identifying, assessing, and reducing risks linked to third-party vendors, suppliers, or service providers. The risks in question refer to the potential impact working with an external vendor could have on your business.
In general, TPRM covers any third-party risk. That could include anything, such as operational disruptions, regulatory violations, reputational harm, financial instability, supply chain interruptions, or contractual failures.
However, for the sake of this article, we will focus specifically on third-party cyber risk management. Please be aware that our advice may not apply to vendor risk management efforts that are not related to cybersecurity.
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What You Need in Your Third-Party Risk Management Framework
Standardized Security Controls
Define a set of security requirements every vendor must meet. Standardized security controls create consistency across all vendor evaluations. This reduces gaps and ensures all vendors align with your organization’s security expectations.
Risk Categorization Levels
Risk categorization levels help prioritize resources by grouping vendors based on their potential impact on your organization. For example, vendors handling sensitive data or critical systems may fall into a “high-risk” category, while others with minimal access are categorized as “low-risk.” This ensures appropriate attention is given to higher-risk relationships.
Incident Response Requirements
Set clear expectations for vendors regarding their incident response responsibilities. This includes reporting timelines, communication procedures, and resolution requirements. Vendors should provide detailed incident response plans that integrate with your internal processes.
Compliance Requirements
Vendors must comply with all applicable compliance regulations and standards. If a vendor does not comply with certain regulations, it could jeopardize your compliance. Additionally, 73% of business leaders report that meeting compliance standards improves their brand reputation.
Your framework should outline these requirements and verify compliance through audits, certifications, or regular assessments.
Monitoring and Reporting Mechanisms
Establish reporting requirements, such as monthly security updates or immediate notifications of potential issues, to maintain visibility into vendor activities. Implementing network monitoring tools may also help you increase your visibility into third-party activities.
Risk Mitigation Strategies
Proactively plan potential risk mitigation strategies before you start any third-party relationships. Of course, your goal is to choose vendors who are as low-risk as possible. However, planning mitigation strategies ahead of time means that you can implement them faster if the risk appears later.
Establishing a Third-Party Risk Management Program: Step-by-Step
1. Define the Scope of Your Program
Identify the specific risks relevant to your organization and prioritize focus areas. Analyze how your organization plans to use third-party vendors and what potential risks that may introduce. Collaborate with key internal stakeholders to gather insights on expected needs and potential challenges. All of these steps will help you define the main focus areas of your program.
2. Set Your Risk Appetite and Tolerance Levels
Establish boundaries for acceptable risks based on your strategic objectives and compliance obligations. These thresholds guide decisions about vendor relationships and risk mitigation efforts. Having these guidelines in place will also help your procurement team recognize when they can choose a good vendor despite certain risks being present.
3. Create Risk Scoring Criteria
Assign a weight to each risk to make it clear which criteria are most important while screening vendors. Then, use this data to design a scoring system to ensure these assessments lead to actionable guidelines for selecting secure and reliable vendors.
Try using the following matrix to categorize your risks. Lower risk factors are lighter weight and critical factors are a higher weight. Place each factor in the square that corresponds to their numerical weight.
| Risk Likelihood | 5 | Upper Medium | Upper Medium | High | High | High |
|---|---|---|---|---|---|---|
| 4 | Lower Medium | Upper Medium | High | High | High | |
| 3 | Lower Medium | Lower Medium | Upper Medium | Upper Medium | High | |
| 2 | Low | Low | Lower Medium | Lower Medium | Upper Medium | |
| 1 | Low | Low | Low | Lower Medium | Upper Medium | |
| 1 | 2 | 3 | 4 | 5 | ||
| Severity of Risk’s Potential Impact | ||||||
4. Establish a Vendor Pre-Screening Process
Implement a structured process for assessing vendors before formal engagement. This includes reviewing security certifications, conducting thorough background checks, and verifying compliance with internal standards.
5. Review and Update Your Program Regularly
Regularly evaluate and improve your risk management program to address new threats, regulatory changes, or evolving business needs. Continuous improvement ensures that your approach remains effective and aligned with current needs.
How to Conduct a Third-Party Risk Assessment
1. Gather All Needed Information From Your Partner
Begin by collecting detailed information about your vendor’s security policies, compliance certifications, and risk management practices. If subcontractors are involved, review the same information for them.
2. Conduct Technical Assessments
Perform thorough technical evaluations of the vendor’s systems, including security audits and vulnerability scans. These assessments verify whether the vendor aligns with your technical and security requirements.
3. Score and Prioritize Identified Cyber Risks
Assign risk scores to issues discovered during the assessment by analyzing their likelihood and potential impact. This scoring helps you prioritize which risks need immediate action and which can be addressed later.
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4. Recommend Risk Mitigation Actions
Provide clear, actionable recommendations to the vendor for addressing risks, such as implementing patches or strengthening access controls. Tailor these actions to address specific vulnerabilities effectively.
5. Document Assessment Findings
Maintain a centralized record of all assessment findings, including identified risks and recommendations. This documentation supports compliance audits and helps guide future reassessments. Furthermore, 64% of companies that use a centralized location for their TPRM information perform their assessments faster.
6. Establish Follow-Up and Reassessment Schedules
Set a regular schedule for follow-ups with vendors to confirm risk mitigation actions are implemented. Periodic reassessments allow you to account for changes in the vendor’s security measures and update their risk profile.
How to Choose a Vendor That Meets Your Third-Party Risk Management Standards
Compare Vendor’s Security Posture Against Pre-Screening Criteria
Review the vendor’s security framework to determine if it aligns with your organization’s pre-defined requirements. Identify gaps in their protocols that could increase risk and assess if adjustments or compensatory controls are viable.
Review Historical Cybersecurity Performance
Examine the vendor’s history of handling security incidents. Consistency in applying strong security practices demonstrates reliability and builds trust in their ability to protect sensitive data. Vendors with repeated lapses require additional scrutiny or stronger mitigation plans.
Assess Possible Subcontractor and Fourth-Party Risks
Analyze the vendor’s partnerships to uncover potential risks from subcontractors or fourth-party entities. Confirm that these third-party connections adhere to your organization’s risk management standards.
Regularly Reassess Vendors as Your Business Needs Change
Periodically review vendors to ensure their practices evolve alongside your organization’s changing requirements. Update contracts and security measures if necessary to maintain alignment. Regular assessments reduce risks as business priorities and industry threats shift.
Choose a Highly-Secure Technology Ecosystem to Protect Your Data
Before you consider your third-party risks, your first step is to ensure that your own data is fully secure. Doing so both protects your data and increases the likelihood that others are willing to work with you as a low risk partner.
Store your data in the Vaultas technical ecosystem to lower your risks. We provide real-time 24/7 monitoring for all stored data. Our centers are in 1,600 different locations so there’s a high chance that we will have one near you.
Reach out today to get started.
