What is Third-Party Risk Management (TPRM)?
Introduction to Vendor Risk Management
Imagine visiting your favourite restaurant. For that restaurant to deliver a positive experience for you, they rely on a variety of vendors. The chair you sit at and the table you eat at is likely supplied by a third-party furnishing company. The food you eat will have ultimately been supplied by a third-party farmer. When you pay your bill, your credit card is processed by a third-party merchant. A third-party accountant may well manage the staff payroll. This goes on for cutlery, kitchen appliances, online booking systems, etc.
Quickly we find that businesses depend on their vendors to deliver goods and services to their customers. This is even true of modern technology-heavy businesses. For example, a software company will use third-party vendors from software tools to cloud hosting providers. For digital businesses, cybersecurity risks increase dependency on third parties for availability and security.
Cybersecurity is not just about how well your business protects itself but increasingly depends on how your suppliers protect your data. Indeed, over 60% of organisations have suffered a security breach through a third party. For a customer, it doesn’t matter if their email address was leaked from a data breach within your own network or that of your email marketing provider.
To manage this risk, companies will use supplier risk management frameworks to systematically classify and manage the risks associated with vendors.
Third-Party Risk Management (TPRM)
Some companies seek to go beyond just vetting their vendors, and will vet all third parties. This is known as Third-Party Risk Management (TPRM) or Supply Chain Risk Management (SCRM).
It is challenging enough though for businesses just to keep on top of just their highest risk vendors, let alone their entire supply chain. Many companies will find it nearly impossible to ask all the third parties in their supply chain about things like data protection, HR security and ESG (Environmental, social and corporate governance) policies.
Additionally, vendors may find themselves needing to fill out the same compliance questionnaires or the same questions for many of their customers.
A tool like Risk Ledger makes life easier for companies by managing their network of third parties, making it faster to collect compliance information and assess risks. Life is also easier for third parties as they only find themselves needing to fill out the same compliance questionnaire once for all Risk Ledger customers. These improvements in operational efficiency allow you to systematically risk manage all your customers. Additionally, you can get deeper insights into your supply chain by seeing fourth and fifth party risks that cannot be achieved using traditional tools.