What is Third Party Risk Management (TPRM)?

Working with third-parties (service providers and partners) enables organisations to more efficiently operate in our complex modern business world. Without them, regular business operations wouldn’t function. From software providers to data centres, cloud services, payroll and HR software providers, consultants, advertising agencies, and hardware, organisations rely on vast supply chains of external parties to support their daily business operations. 

While these third-party relationships provide valuable services, they also introduce significant risks that can potentially compromise your security, compliance with regulations, and reputation. third-party Risk Management (TPRM) is the practice of identifying, assessing, and mitigating these risks across your entire ecosystem of third-party vendors, suppliers, and service providers.

In fact, 62% of data breaches today are linked to third-parties. With severe impacts like system downtime, regulatory penalties, and loss of customer trust, implementing a robust TPRM programme is becoming a top priority for forward-thinking organisations. 

Here, we discuss third-party risk management in its entirety, with the view of helping you secure your organisation’s corporate supply chain against cyber attacks and data breaches. 
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What Is a third-party?

A third-party is any external organisation that your company works with and which you grant access to internal systems, data repositories, physical facilities or other critical assets, or which handles personally identifiable information (PII) on your or your customers’ behalf. This might include vendors offering software/IT services, contractors hired for specialised projects, consultants offering professional advisory services.

These third-party relationships are vital for enabling efficiency, leveraging expertise, and focusing on core competencies. However, by necessity they also increase your exposure to potential risks from any flaws and weaknesses in these outside parties' own security postures, compliance practices, business continuity capabilities and more.

Compounding this risk is the concept of fourth-parties. A fourth-party refers to sub-contractors or other external partners or suppliers to your direct third-party providers, which they have relationships with in order to execute certain elements of their products or services. For instance, a cloud hosting vendor you utilise could outsource aspects of their data centre maintenance and operations to an external facilities management company acting as a fourth-party.

While fourth-parties are once-removed from your organisation, these extended relationships within your corporate supply chain can still introduce significant vulnerabilities. A security breach, service outage, compliance violation or other adverse event stemming from a fourth-party has the ability to reverberate back through the supply chain - potentially still able to compromise the integrity of your own business-critical systems, data, and processes.
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Why Is Third-Party Risk Management Important?

These days, organisations must share often sensitive data and provide systems access to a myriad of third-party partners, vendors, and suppliers. This broad ecosystem is necessary for operating across multiple locations, leveraging remote workforces, and coordinating processes and employees. However, if even a single third-party relationship has lax security practices, it creates an entry point that threat actors can exploit to breach your defences or data.

With each new third-party relationship, you inherit new risks related to data security, regulatory compliance and business continuity. A breach at any point in your corporate supply chain can and will have severe ramifications. Common impacts include:

• Data Breaches and IP Theft: Threat actors can potentially access your sensitive data, such as customer records, financial information, trade secrets, and more, by targeting a third-party with weak security controls that handle such data for you.
• Regulatory Non-Compliance: If a vendor mishandles data in violation of privacy laws like GDPR or CCPA, you could face stiff penalties and legal action as well.
• Operational Disruptions: Heavy reliance on third-parties increases exposure to system outages or performance issues that could cripple your business processes.
• Reputational Damage: News of a third-party breach impacting your customers can severely tarnish brand trust and customer loyalty.

Implementing a robust third-party risk management (TPRM) programme is thus crucial for mitigating these pervasive supply chain risks. A formal TPRM practice provides comprehensive visibility into your entire vendor ecosystem, enabling continuous monitoring to detect and remediate emerging threats proactively.
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How to Implement a third-party risk management programme

While the specific details vary across organisations, most effective TPRM initiatives follow a standard risk management lifecycle with several key steps:

1. Define Strategy & Align Stakeholders: First, clearly outline the programme's objectives, scope, governance, and policy guardrails. Assign roles and responsibilities across teams like procurement, security, legal, and compliance. Most critically, you must demonstrate TPRM's strategic value to leadership and foster stakeholder buy-in.
2. Build a Centralised Vendor Inventory: Construct a unified system providing full visibility into all third-party relationships. Document granular details like services provided, data processed, personnel access, and contract timelines.
3. Segment Vendors by Risk Exposure: Not all partners pose equal threats - conduct risk prioritisation to categorise each third-party as high, medium, or low criticality based on factors like access scope, data sensitivity, and service criticality.
4. Perform Rigorous Risk Assessments: For high-risk vendors, execute comprehensive due diligence, potentially including on-site audits, security evaluations, control testing, and continuous monitoring. Common activities are security questionnaires, external scanning, pen testing, and evidence reviews.
5. Develop Mitigation Plans: Collaborate closely with third-parties to create risk treatment plans addressing any identified gaps or control deficiencies. Implement proportional safeguards through contractual, technical, and administrative controls.
6. Operationalize Governance & Oversight: Establish clear policies and procedures governing all TPRM activities like assessments, issue management, and metrics. Define formal processes with explicit roles and responsibilities.
7. Continuously Monitor & Optimise: Since cybersecurity risks constantly evolve, TPRM must be an iterative practice. Leverage tools like threat intelligence to continuously monitor third-parties. Analyse metrics, uncover program shortcomings, and optimise processes perpetually.

The core goal is to develop an agile TPRM capability that provides complete risk transparency and enables proactive management of your complex third-party environment as it changes over time.
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Investing in TPRM and What to Look for in a Platform

Manage third-party risk manually at scale is impossible. As your organisation onboards more and more vendors, a dedicated TPRM software platform is essential for efficiency and comprehensive risk visibility.

Thus, when evaluating solutions, look for platforms with capabilities like:

Centralised Vendor Inventory Management 

The foundation of any TPRM programme is a centralised repository that provides a comprehensive view of all your third-party relationships and associated risk data. Look for solutions that integrate vendor onboarding and offboarding workflows to keep this inventory continuously updated.

Risk Assessment Automation 

Conducting periodic risk assessments is a core TPRM activity, but doing it manually is incredibly time and resource-intensive. TPRM platforms should offer risk assessment templates, questionnaire builders, and automation features to streamline this process at scale.

Continuous Risk Monitoring

Risks are not static - they are constantly evolving. Leading TPRM platforms integrate with threat intelligence feeds and other data sources as well as automate the process of re-reviews and reporting on control-changes in suppliers’ security postures to provide continuous risk monitoring across your vendor portfolio.

Advanced Risk Analytics and Reporting 

Sophisticated risk scoring algorithms and reporting dashboards provide visual at-a-glance views into your organisation's third-party risk exposure and key risk indicators. These insights enable smarter risk-based decisions.

Integrated Risk Management

Your TPRM programme doesn't operate in a silo - it ties into other risk domains like IT, cyber, compliance, etc. Look for solutions that integrate with or complement your existing GRC platforms for a cohesive view of risk.

Scalability and Extensibility 

As your business grows, your TPRM needs will expand as well. Evaluate platforms based on their ability to scale seamlessly and provide an extensible architecture that allows customisation to your unique requirements.

One solution increasingly seen as a strong contender in the TPRM space is Risk Ledger. Their innovative platform leverages process automation and advanced analytics and visualisation to provide comprehensive third-party risk management capabilities.

By investing in a robust TPRM platform like Risk Ledger, you gain a "single pane of glass" to proactively identify and mitigate third-party risks before they impact your business. In our interconnected world, this 360-degree visibility is critical for safeguarding your organisation.