The Importance of Third Party Risk Management in 2024

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Why Third Party Risk Management Is More Important Than Ever?

In order to safeguard a business from the risks associated with working with an outside vendor, Third Party Risk Management (TPRM) is required. Companies face the risk of having their reputations, finances, and data compromised if they depend on outside vendors to provide them with the products and services they need to operate.

It''s essential to thoroughly research potential partners to ensure they can be trusted. When a third party is involved, it is often necessary for both sides to share sensitive information in order to do business. Because of the possible access, they could have to confidential data, third parties pose a unique cybersecurity risk. Because your firm has no say in the vendor's cybersecurity practices, it must put its faith in the vendor's ability to keep the information it shares with it safely.

Third party management and supply chain partners can provide firms with services such as shipping, website/Cloud hosting, materials, and more. However, if the external party suddenly stops providing the necessary services, it might create issues for the underlying business.

Third Party Risk Management: What Is It?

Third party risk management is the process of identifying and reducing risks associated with outsourcing to third party suppliers or service providers. Subcontracting and on-sourcing agreements are becoming more and more a component of vendor management to lessen the risk provided by third parties. This is especially essential for high-risk suppliers dealing with confidential information. This necessitates doing due diligence to ascertain whether or not a prospective third party is competent to maintain the confidentiality of sensitive data.

Objectives Of Third Party Risk Management

3rd party risk management programs aim to mitigate the following risks:

Risks Associated With Cybersecurity:
Cyber risk is the potential for harm or financial loss due to cyber activity such as hacking, data breaches, or other security issues. Due diligence is often carried out before integrating new suppliers and regular vendor lifecycle monitoring helps to reduce this risk.

objectives of third party risk management

Operational Risks:
When an outside entity threatens to interfere with regular company operations, that is known as operational risk. Service level agreements (SLAs) are often used to handle this kind of situation. Depending on how important the vendor is to your operations, you can decide to have an additional vendor ready to go. The majority of financial institutions operate in this way.
Reputational Risks:
The risk associated with unfavorable public perception brought on by an outside source. Customers who are not pleased, inappropriate encounters, and poor suggestions are only the beginning. Third party data breaches, such as the 2013 Target data breach, are the most damaging incidents.
Risks Associated With Local Laws, Regulations, And Compliance:
The risks involved with a third party that would interfere with your organization''s compliance with local laws, regulations, or agreements. For businesses that provide healthcare, financial services, and government services as well as their business partners, this is especially crucial.
Financial Risks:
It is the risk that an external factor could have a negative effect on your company''s sales. Ineffective supply chain management can prevent your company from selling a new product.

Best Practices For Third Party Risk Management

Maintain a third party Inventory:
You can easily keep tabs on your interactions with outside parties by maintaining a list of all the merchants and third parties you work with. These inventories might also be arranged according to categorization criteria. According to the level of the threat posed by a third party''s failure, you can assign a tier rating to your relationship.
Understand the TPRM Lifecycle:
If you want to improve your company''s safety in light of its reliance on other parties, you should use an approach known as the third party risk management lifecycle. ISG states that there are four stages to this lifecycle:
- Setup and Tiering
- Due Diligence and Selection
- Negotiation and Onboarding
- Ongoing Monitoring and Management
Your company will be able to make better choices about how to increase security with third party entities if these steps are completed in the sequence listed.
Automate Wherever Possible: To keep track of third party risk variables, businesses, and organizations should, if feasible, use automation. In order to ensure the prevention of third party risks, companies can save time and effort by automating some of the processes. Also, by swiftly and continually monitoring third parties and gathering information on security levels, they can strengthen safety. Automated systems can assist businesses to save time, money, and resources in many ways; one such way is via the use of TPRM frameworks and tools.

Factors To Take Into Account While Onboarding A Vendor

factors to consider for onboarding a vendor

Here are some things to keep in mind while making your final decision on a third party. How risky they are to the company will depend on the responses:

What kind of information is being accessed? What permissions have been set up?
Is there collaboration with outside parties that might create delivery issues?
Are they located in a volatile region of the world?
Do they provide a necessary service? Should we put in place a backup provider if that''s the case?
What past security incidents have they had, and what industry standards do they implement? (such as SLA patching, common hygiene, past breaches, etc.)
How prepared are they for any challenges in operations?
Have they been following the guidelines that your company has established?
How are they doing financially?

Managing Third Party Risks

Although interactions with third parties are required for many organizational operations, they may lead to security breaches. Thankfully, there are procedures that businesses and organizations can adhere to in order to enhance their third party security. Your company can avoid any problems that may result from these relationships by using security measures including monitoring risk factors and third party inventories.

Additionally, leveraging automation via third party risk management frameworks and technologies is a viable alternative when searching for methods to advance third party security. Third party risk management must be used to protect an organization from the risks associated with relying on third parties.