According to 2023 research from CyberRisk Alliance, an average organization works with 88 third parties at any given time. While such diverse partnerships are crucial in supporting your business operations, they also complicate your supply chain and expose you to a broad spectrum of risks. The best solution here is to work with third parties in a risk-informed manner.
Our guide explains who is considered a third party and how they impact your organization to help shape your decisions. You’ll then learn practical tips for developing a third-party risk management (TPRM) program that allows for effective monitoring of your third-party network.
What is a third party in business? Definition and examples
A third party is an umbrella term used for any individual or entity, typically contract-bound and working independently outside an organization, that has an ongoing business or professional relationship with the organization. Common examples of third parties include:
- Web hosting services
- SaaS solutions
- CRM providers
- Payment processors
- Tax agencies
- Resellers
- Distributors
Vendors are the most common type of third parties you work with as they provide the products and services that support the organization’s core processes. In terms of the flow of operations, a third-party vendor can be both upstream (e.g., a supplier or a software vendor) and downstream (e.g., a distributor or a managed service provider (MSP)).
The primary risk-based consideration when working with any third party is that they are independent entities beyond the control of your organization—unlike the first and second party. To give you a better perspective, let’s understand the tiering system for parties in a business relationship.
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The concept of party-based tiers in business relationships
The following table outlines the actors in the tiering system for any business relationship:
It’s worth noting that the relationship with a third party stems from a direct need, such as cost-effective outsourcing or getting dedicated software for payroll management. A fourth party, on the other hand, is an entity your third party outsources to—this expands your business ecosystem and may expose your vendor-accessed data to more parties than intended.
A primary goal of any organization working with third parties is to map out its third-party risks, as well as monitor any fourth parties it may be interconnected with.
Understanding third-party risks in business
The number of suppliers and service providers typically grows as your organization scales up and demands more stable third-party logistics. This also broadens your risk landscape because:
- You’re inevitably sharing some organizational data during the course of your relationship with third parties.
- At the same time, you cannot continuously monitor their internal operations and risk management practices.
Naturally, when working with third parties, you must track the risks related to all parties you’re involved with. This is because you don’t want your organization to be held responsible or pay the price for any issues caused by the vendor’s negligence, exploited vulnerabilities, or poor practices.
For instance, let’s consider this fictionalized example—XYZ Corp, a well-known home loan servicer, uses a third-party payment processing service to handle mortgage payments. The risk profile of XYZ Corp automatically expands to cover issues like:
- What if the third party processes unauthorized mortgage payments?
- What is the potential of client data exposure if the third party suffers a breach?
Types of third-party risks
To stay on top of your third-party operations, it’s crucial to understand the many forms third-party risks can take. They typically fall under one of the following categories:
- Strategic: Any disruption to an organization’s long-term goals caused by the strategic misalignment between the organization and its third parties.
- Operational: The possibility of your business continuity being compromised by a third party’s inability to deliver its product or service according to standards.
- Financial: The organization’s financial health is impacted by a third party’s excessive liabilities, poor credit, or similar issues.
- Compliance: A threat to an organization’s legal standing as a result of a third party’s non-compliance with the applicable regulations and standards.
- IT and security: Any risk to an organization’s confidential and sensitive data stemming from a third party’s lack of sufficient cybersecurity measures.
- Reputational: A damaged brand image due to the association with third parties perceived negatively by the public.
All of the above risks can be mitigated with a systematic approach, and that’s where a solid third-party risk management (TPRM) program comes into the picture.
{{cta_simple17="/cta-modules"}}| Webinar: Vendor risk management
What is third-party risk management (TPRM)?
Third-party risk management is a set of practices that help your organization discover, assess, and mitigate threats associated with third parties. A quality TPRM program reduces the risk exposure caused by interconnected business relationships. Additionally, TPRM is required by many industry-standard financial and security frameworks, such as SOX and NIST Cybersecurity Framework.
Best practices to manage third-party risks
A well-developed TPRM program gives you visibility into your supply chain risks and enables proactive action. You can create a program for your organization by following the key TPRM best practices:
- Assess and evaluate third parties.
- Keep a third-party inventory.
- Maintain strict access controls for third parties.
- Monitor third parties continuously.
- Don’t forget about fourth parties.
Here’s a checklist to help you implement these practices more easily.
1. Assess and evaluate third parties
- Ensure that each third party goes through a thorough risk assessment process.
- Use questionnaires and formalized due diligence procedures to proactively assess inherent risks.
- Establish a risk scoring system to quantify risks.
2. Keep a third-party vendor inventory
- Use a centralized inventory to keep track of all third parties and their risk profiles.
- Categorize third parties according to risk score for easier prioritization of mitigation strategies.
- Look for shadow IT vendors connected to your system—this includes any software service your team might be using that you’re unaware of.
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3. Maintain strict access controls
- As you onboard third parties, define their access levels to your data and assess the sensitive information you’re bound to share.
- Classify data according to sensitivity levels and implement rigorous access controls and security policies to protect it.
- Conduct frequent access reviews to proactively identify and patch any vulnerabilities.
4. Monitor third parties continuously
- Monitor third parties throughout their lifecycle to keep up with the ever-changing risk landscape.
- Replace point-in-time assessments with continuous monitoring through automation tools to stay on top of all relevant risks.
- Use comprehensive dashboards to ensure a bird’s-eye view of third-party risks.
5. Don’t forget about fourth parties
- Map out the indirect threats fourth parties in your network expose you to.
- Use third-party security reviews to gain visibility into fourth parties and potential threats.
- Build fourth-party tracking workflows into your due diligence program.
Manage third-party risks confidently with Vanta
TPRM implementation is a must if you’re working with third parties. With Vanta’s trust management platform, you can set up risk management best practices and monitor third-party risks in real time. Vanta’s Vendor Risk Management solution comes with features that enable:
- Automated third-party inventory
- Shadow IT discovery
- Risk assessments with configurable auto-scoring
- Vendor security review tracking
- AI-enabled security questionnaires
- Unified dashboard tracking of third-party data (risk profile, category, etc.)
These features minimize the time and effort necessary for performing crucial risk management activities, helping you eliminate inefficiencies and create a cohesive workflow.
Watch this webinar to get a detailed walkthrough of the solution. Or schedule a custom demo to see Vanta’s features in action.
{{cta_simple5="/cta-modules"}}
Introduction to TPRM
How to work with a third-party in business: Relevant risks and best practices
Introduction to TPRM
According to 2023 research from CyberRisk Alliance, an average organization works with 88 third parties at any given time. While such diverse partnerships are crucial in supporting your business operations, they also complicate your supply chain and expose you to a broad spectrum of risks. The best solution here is to work with third parties in a risk-informed manner.
Our guide explains who is considered a third party and how they impact your organization to help shape your decisions. You’ll then learn practical tips for developing a third-party risk management (TPRM) program that allows for effective monitoring of your third-party network.
What is a third party in business? Definition and examples
A third party is an umbrella term used for any individual or entity, typically contract-bound and working independently outside an organization, that has an ongoing business or professional relationship with the organization. Common examples of third parties include:
- Web hosting services
- SaaS solutions
- CRM providers
- Payment processors
- Tax agencies
- Resellers
- Distributors
Vendors are the most common type of third parties you work with as they provide the products and services that support the organization’s core processes. In terms of the flow of operations, a third-party vendor can be both upstream (e.g., a supplier or a software vendor) and downstream (e.g., a distributor or a managed service provider (MSP)).
The primary risk-based consideration when working with any third party is that they are independent entities beyond the control of your organization—unlike the first and second party. To give you a better perspective, let’s understand the tiering system for parties in a business relationship.
{{cta_withimage5="/cta-modules"}}
The concept of party-based tiers in business relationships
The following table outlines the actors in the tiering system for any business relationship:
It’s worth noting that the relationship with a third party stems from a direct need, such as cost-effective outsourcing or getting dedicated software for payroll management. A fourth party, on the other hand, is an entity your third party outsources to—this expands your business ecosystem and may expose your vendor-accessed data to more parties than intended.
A primary goal of any organization working with third parties is to map out its third-party risks, as well as monitor any fourth parties it may be interconnected with.
Understanding third-party risks in business
The number of suppliers and service providers typically grows as your organization scales up and demands more stable third-party logistics. This also broadens your risk landscape because:
- You’re inevitably sharing some organizational data during the course of your relationship with third parties.
- At the same time, you cannot continuously monitor their internal operations and risk management practices.
Naturally, when working with third parties, you must track the risks related to all parties you’re involved with. This is because you don’t want your organization to be held responsible or pay the price for any issues caused by the vendor’s negligence, exploited vulnerabilities, or poor practices.
For instance, let’s consider this fictionalized example—XYZ Corp, a well-known home loan servicer, uses a third-party payment processing service to handle mortgage payments. The risk profile of XYZ Corp automatically expands to cover issues like:
- What if the third party processes unauthorized mortgage payments?
- What is the potential of client data exposure if the third party suffers a breach?
Types of third-party risks
To stay on top of your third-party operations, it’s crucial to understand the many forms third-party risks can take. They typically fall under one of the following categories:
- Strategic: Any disruption to an organization’s long-term goals caused by the strategic misalignment between the organization and its third parties.
- Operational: The possibility of your business continuity being compromised by a third party’s inability to deliver its product or service according to standards.
- Financial: The organization’s financial health is impacted by a third party’s excessive liabilities, poor credit, or similar issues.
- Compliance: A threat to an organization’s legal standing as a result of a third party’s non-compliance with the applicable regulations and standards.
- IT and security: Any risk to an organization’s confidential and sensitive data stemming from a third party’s lack of sufficient cybersecurity measures.
- Reputational: A damaged brand image due to the association with third parties perceived negatively by the public.
All of the above risks can be mitigated with a systematic approach, and that’s where a solid third-party risk management (TPRM) program comes into the picture.
{{cta_simple17="/cta-modules"}}| Webinar: Vendor risk management
What is third-party risk management (TPRM)?
Third-party risk management is a set of practices that help your organization discover, assess, and mitigate threats associated with third parties. A quality TPRM program reduces the risk exposure caused by interconnected business relationships. Additionally, TPRM is required by many industry-standard financial and security frameworks, such as SOX and NIST Cybersecurity Framework.
Best practices to manage third-party risks
A well-developed TPRM program gives you visibility into your supply chain risks and enables proactive action. You can create a program for your organization by following the key TPRM best practices:
- Assess and evaluate third parties.
- Keep a third-party inventory.
- Maintain strict access controls for third parties.
- Monitor third parties continuously.
- Don’t forget about fourth parties.
Here’s a checklist to help you implement these practices more easily.
1. Assess and evaluate third parties
- Ensure that each third party goes through a thorough risk assessment process.
- Use questionnaires and formalized due diligence procedures to proactively assess inherent risks.
- Establish a risk scoring system to quantify risks.
2. Keep a third-party vendor inventory
- Use a centralized inventory to keep track of all third parties and their risk profiles.
- Categorize third parties according to risk score for easier prioritization of mitigation strategies.
- Look for shadow IT vendors connected to your system—this includes any software service your team might be using that you’re unaware of.
{{cta_testimonial6="/cta-modules"}}
3. Maintain strict access controls
- As you onboard third parties, define their access levels to your data and assess the sensitive information you’re bound to share.
- Classify data according to sensitivity levels and implement rigorous access controls and security policies to protect it.
- Conduct frequent access reviews to proactively identify and patch any vulnerabilities.
4. Monitor third parties continuously
- Monitor third parties throughout their lifecycle to keep up with the ever-changing risk landscape.
- Replace point-in-time assessments with continuous monitoring through automation tools to stay on top of all relevant risks.
- Use comprehensive dashboards to ensure a bird’s-eye view of third-party risks.
5. Don’t forget about fourth parties
- Map out the indirect threats fourth parties in your network expose you to.
- Use third-party security reviews to gain visibility into fourth parties and potential threats.
- Build fourth-party tracking workflows into your due diligence program.
Manage third-party risks confidently with Vanta
TPRM implementation is a must if you’re working with third parties. With Vanta’s trust management platform, you can set up risk management best practices and monitor third-party risks in real time. Vanta’s Vendor Risk Management solution comes with features that enable:
- Automated third-party inventory
- Shadow IT discovery
- Risk assessments with configurable auto-scoring
- Vendor security review tracking
- AI-enabled security questionnaires
- Unified dashboard tracking of third-party data (risk profile, category, etc.)
These features minimize the time and effort necessary for performing crucial risk management activities, helping you eliminate inefficiencies and create a cohesive workflow.
Watch this webinar to get a detailed walkthrough of the solution. Or schedule a custom demo to see Vanta’s features in action.
{{cta_simple5="/cta-modules"}}
Explore more TPRM articles
Introduction to TPRM
Vendor lifecycle management
Vendor risk assessment
Running a VRM program
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