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A growing network of third parties calls for a systemized approach to managing the risks they expose your organization to. According to the 2023 Deloitte Global Survey, 45% of organizations highlight investments in third-party risk management (TPRM) technology and data as one of their top business priorities.

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In this article, you’ll learn why there’s such a high interest in a comprehensive TPRM program. Specifically, we’ll cover the following:

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• Definition of TPRM and its benefits
• The importance of having a TPRM program
• Six best practices for managing third-party risks end to end

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What is third-party risk management?

Third-party risk management is a robust set of practices for identifying, assessing, and remediating threats from third parties like vendors, partners, and contractors. The primary goal of TPRM is to give organizations complete visibility of their third-party risk environment and help them develop appropriate risk mitigation strategies.

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TPRM enables organizations to overcome numerous challenges they face in a globalized, interconnected environment, such as:

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• Third-party network complexity: As your organization grows, its number of third-party partners (agencies, software providers, etc.) increases, as does the associated risk landscape. TPRM practices let you be risk-aware and scale up your vendor profile more confidently.
• Lack of control over third parties: Your organization can’t directly impact a third party’s internal policies and operations. What you can do is map them to corresponding risks, request SLA-based controls, and make procurement decisions according to your risk appetite.
• Data privacy and security concerns: Since sharing data with third parties is almost unavoidable, any breach on their end can jeopardize your operations as well. A methodical approach to TPRM lets you identify and address any threats or vulnerabilities to keep your systems secure.

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Benefits of a third-party risk management program

Besides combating the above challenges, a well-managed TPRM program offers the following benefits:

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• Effective risk mitigation plans: After identifying and assessing third-party risks, you get quality data to help shape effective mitigation strategies.
• Cost-effectiveness: A TPRM program can define all risk assessment and management procedures alongside task owners in advance, which results in cost-effective process optimization and resource utilization.
• Regulatory compliance: Effective TPRM is an integral component of many voluntary and mandatory standards, especially in heavily regulated industries. Integration of TPRM into your GRC program helps you stay compliant.
• Operational continuity: When you partner with a third party, you become dependent on them to at least some extent. Ongoing TPRM accounts for potential operational disruptions and specifies measures to ensure business continuity.
• Increased cybersecurity awareness: Effective TPRM helps you maintain visibility into a third party’s security practices and related protections for your data and processes. 

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Why do you need a TPRM program and who oversees it?

Back when software didn’t play such an integral role in business operations, third-party risks could have been managed by specific departments and even individuals, such as compliance officers or procurement managers.

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Today, the number of third parties per organization can be in the thousands, even more. The sheer amount of due diligence and risk management work that needs to be completed is extensive and cannot be managed without a disciplined approach.

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A TPRM program serves as an all-encompassing solution to bring order to scattered risk management processes, with an emphasis on third parties. It’s typically handled by a dedicated team of risk experts who follow consistent and cohesive practices to manage third-party relationships efficiently without being bogged down by scalability issues. Additionally, key people in IT, finance, and other departments often have to be kept in the loop when it comes to developing or overseeing mitigation strategies for relevant risks.

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The value of a TPRM program is even more prominent in industries handling sensitive data, such as healthcare and finance, where even the smallest risks can have severe consequences on an organization’s well-being.

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Third-party risk management: 6 best practices to follow

When developing your TPRM program, follow these six best practices to ensure its effectiveness:

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1. Define your risk appetite and criteria
2. Create a vendor management policy
3. Ensure cross-department collaboration
4. Automate risk assessments
5. Set up an elaborate onboarding process
6. Monitor third parties continuously

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1. Define your risk appetite and criteria

TPRM starts with a well-defined risk appetite and standardized risk criteria, which will guide all your future security practices within the program. Once you’ve identified your risk threshold, you’ll use it to derive benchmarks against which you’ll compare prospective third parties.

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While profiling your vendors, it’s a good idea to dive into different risk types, such as:

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• Cybersecurity risks
• Operational risks
• Financial risks
• Strategic risks
• Compliance risks

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Each organization will have a unique risk profile, depending on its industry and operations—so see if certain risks are more prominent for a particular vendor. For example, a healthcare institution may prioritize cybersecurity and compliance risks over other risks because of the sensitive nature of their services. A brick-and-mortar retail company, on the other hand, may have to address operational and financial risks as immediate concerns.

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Defining your basic risk appetite can be time-consuming, but it’s worth the effort as it sets the foundation for other TPRM processes, such as planning for sensitive risk areas and determining what third parties are eligible to do business with you.

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2. Create a vendor management policy

Most organizations focus on fortifying their internal cybersecurity measures, but it’s equally important to understand the impact the vendors you work with have on your security posture. You can avoid this oversight by creating a strict vendor management policy (VMP) around a third party’s access to your sensitive data and systems.

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The VMP should focus on high-risk third parties with access to your internal network. It can include several components, most notably:

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• Vendor access controls
• Network and system security details
• Vendor liability
• Incident response and disaster recovery plans
• Compliance requirements

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A VMP requires input from experts within IT, legal, and finance departments to ensure the final document is watertight. Consider having a blueprint plan for prioritizing high-risk vendors.

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3. Ensure cross-department collaboration

As noted earlier, TPRM processes may require you to involve several department experts to provide additional input, identify overlooked threats, and other tasks.

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For example, someone from your IT department can be included in the development of cybersecurity risk criteria. They can also stay in contact with a third party’s IT team in case of any security questions or concerns.

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A major challenge here is poor cross-departmental collaboration. Because the program requires members across departments to contribute, there is a likelihood of communication silos and missed tasks.

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The best practice for collaborative workflows is to have a program owner who will establish a chain of accountability for TPRM tasks with clearly defined roles and responsibilities. You can also use a VRM solution that enables centralized visibility of pending TPRM tasks.

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Additionally, try to establish an organization-wide culture of risk awareness and define clear communication channels between departments for a cohesive workflow.

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4. Automate risk assessments

Comprehensive risk assessments are at the core of TPRM. They typically happen in three stages:

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1. Gathering risk data (typically through a risk assessment questionnaire)
2. Evaluating the results and associated third-party risk posture
3. Categorizing third parties according to their risk level

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While the process may appear simple at first glance, it involves quite a bit of work. You need to develop robust questionnaires that account for all relevant risks, analyze responses, and come up with a way to quantify and score those risks.

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This is why one of the latest best practices is to have a capable risk management tool with automation functionalities. The goal is to automate repeatable assessment processes and eliminate manual work to enable risk teams to focus more on strategic decision-making.

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5. Set up a thorough onboarding process

Onboarding a third party can take months, depending on the vendor type or your industry. You need to finalize the contract terms, ensure alignment with your operational and strategic goals, and proactively mitigate risks that could surface down the line.

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This is why you should create a transparent and efficient third-party onboarding process for your partners. When onboarding a new third party, pay special attention to SLAs and contract terms as they clarify your expectations around performance and contract violations.

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At the end of the onboarding process, add your third party to a centralized inventory to enable easier monitoring.

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6. Monitor third parties continuously

Your third-party risk landscape will constantly evolve as you onboard new third parties and implement various remediation strategies. Additionally, each third party’s operations and risk exposure also change with time, so your initial assessments will most likely become outdated at some point.

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All of the above calls for regular reassessments of third-party risks. While you may not be able to get all data in real time, you should at least enable periodic updates you can leverage to tweak your TPRM program accordingly.

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Much like due diligence processes, ongoing reassessments can be time-consuming if done manually. This is why it’s best to opt for a software solution that integrates with your current workflow and can pull the monitoring data you need without manual effort.

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Overcoming TPRM challenges

Given the best practices above, it’s easy to conclude that TPRM is a data-intensive process. Each potential third party needs to be evaluated thoroughly, which entails extensive data gathering and communication.

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For example, after you send out a risk assessment questionnaire, you won’t take the results at face value. Instead, you’ll need to go through security reviews and audit reports and maintain spreadsheets to record data points.

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All of this will happen in the initial stages of your relationship with a third party. As it progresses, you’ll need to keep collecting and analyzing data throughout its lifecycle to stay on top of all relevant threats. This is why TPRM can quickly become overwhelming without well-established processes and the right tools.

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The good news is that a robust platform can be an effective solution for minimizing scattered reviews, communication, and documentation workflows.

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Implement and maintain a robust TPRM program with Vanta

Vanta is an end-to-end trust management platform with a suite of features dedicated to managing third-party risks and ensuring more predictability in your operations. It sets you up with an automation-enabled Vendor Risk Management capabilities, which can streamline your review workflows, resources, documents, and tasks in one place.

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Vanta is built with TPRM best practices in mind and features that can automate up to 90% of your everyday risk management tasks. The platform gives you access to:

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• Centralized vendor inventory
• Comprehensive dashboard for tracking vendor inventory information
• Auto-scoring based on predetermined or custom parameters
• Shadow IT discovery and configurable controls
• Security review tracking

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With over 300 integrations, Vanta can bring numerous data sources together to give you a 360° overview of your risk landscape.

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If you’re looking to save time while reviewing documents for vendor security reviews you may want to leverage Vanta AI to automate the review of documentation for questions you specify. Watch this webinar to see many of these features in action. Or schedule a custom demo with from a Vanta expert today.

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