Third-party risk management (TPRM) is an essential process for understanding and mitigating threats that inherently emerge within your business or professional partnerships.

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The demand for comprehensive TPRM programs has undeniably increased in recent years. According to EY’s 2023 Global Third-Party Risk Management Survey, 90% of respondents are leaning toward centralized risk management programs that also account for third-party risks. The question is, are such programs worth the investment?

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This guide will discuss why third-party risk management is important and give you in-depth insight into the benefits of a quality TPRM program. You’ll then learn about the key elements needed to build your own program confidently.

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Evolution of third-party risk management

Every growing organization needs partnerships with third parties, such as suppliers, contractors, and service providers, to scale its operations. While such partnerships are highly beneficial, they always carry significant risks because the third party is:

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• Influencing the stability of your operations
• Having access to your data and systems

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With the rise of digitalization and globalization, third-party risks have evolved from mild to severe. For example, a common issue you can anticipate is a temporary service disruption that halts your production. However, more serious threats may cover extreme consequences like vendor lock-in and data breaches.

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Another new category of risk in the TPRM landscape is ESG (environmental, social, and governance) risk. Organizations today need to pay more attention to how their third parties approach business ethics and sustainability, as undesirable actions in these areas can negatively impact business partners as well.

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All these changes in the business landscape require effective risk management practices like in-depth due diligence and timely security checks. Ideally, these practices should be documented and implemented via a mature TPRM program that doesn’t leave room for unidentified threats.

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Objectives and benefits of third-party risk management

While the main objective of TPRM is to mitigate third-party risks, an effective program serves many other broad objectives, most notably:

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• Strengthening the supply chain
• Supporting ethical operations
• Promoting organizational resilience and ensuring business continuity

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These overarching objectives are comprised of many micro-level benefits of TPRM implementation, such as:

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• Better understanding of the third-party’s risk landscape: TPRM gives you broad visibility of your business partnership actors and threats, which leads to better data-driven decisions on third-party relationships.
• Effective shadow IT discovery and resolution: The idea behind shadow IT discovery is to detect unauthorized use of third-party software in your network to mitigate potential data security concerns.
• Cost-effective GRC management: TPRM defragments your due diligence processes and creates a cohesive workflow, reducing waste across your GRC program.
• Timely procurement and vendor onboarding: Risk-aware third-party procurement can take months with disparate systems. Centralized TPRM expedites the process to help you scale more efficiently. 
• Centralized third-party ecosystem: With TPRM, you get a high-level overview of third parties for tracking regulatory compliance and commitments.

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However, if you want your TPRM program to deliver all these benefits, you need to ensure that it checks a few important boxes.

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Key elements of a successful TPRM program

A solid TPRM program consists of four elements:

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1. Selection and due diligence
2. Onboarding
3. Inventory and monitoring
4. Offboarding

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Each element has considerations you should take into account while developing your TPRM program, as explained below.

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1. Selection and due diligence

Third-party selection isn’t only about the provider’s offering; you also need to closely examine their risk profile. In other words, you need a thorough due diligence process.

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To develop it, standardize your risk criteria and use them as benchmarks against which you’ll compare all potential third parties. Doing so will help you make confident decisions about the third parties you want to work with.

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2. Onboarding

Having a systemized and well-documented third-party onboarding process is crucial to integrating your partners into your organization’s ecosystem. Using questionnaires, audit reports, and access reviews creates a trackable method for monitoring how a particular third party interacts with your systems.

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{{cta_webinar4="/cta-modules"}} Webinar: Vendor risk management

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3. Inventory and monitoring

The information on all third parties you onboard should be centralized and categorized based on their risk level. Categorization shouldn’t be an issue if you define your risk criteria as explained in the first step.

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The true challenge lies in monitoring. You should set up a system that gives you a real-time overview of third-party risks to ensure a partner (or a fourth party) isn’t exposing your organization to unknown threats. Additionally, you should devise effective mitigation protocols to stay prepared for any adverse scenarios.

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4. Offboarding

When offboarding a third party, you need to conduct important checks to avoid unpleasant surprises down the line. Specifically, you need to consider aspects like:

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• Access to your systems, which should be revoked when you offboard a third party
• Sensitivity of data shared with them
• Shared intellectual property and its protection

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Challenges of implementing an effective TPRM program

Organizations working with numerous vendors, suppliers, partners, and other third parties often find TPRM processes time-consuming and ineffective, mainly because of inefficiencies like:

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• Point-in-time assessments: Infrequent risk assessments without real-time (or at least near real-time) data leave too much room for threats to go unnoticed.
• Limited visibility: Many organizations don’t have a complete overview of third parties and don’t account for fourth and Nth parties.
• Disparate and outdated technology: TPRM processes that rely on spreadsheets, email chains, and similar ineffective methods can overwhelm teams.
• Communication silos: The accountability and responsibility for risk management may be defined too narrowly, creating knowledge gaps and preventing relevant departments from contributing.

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These inefficiencies call for a more streamlined and comprehensive approach to TPRM. One definitive way to support your TPRM program is to use robust risk management software that not only automates mundane tasks but also gives you a clear overview of your third-party ecosystem in real time.

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Streamline your TPRM program end to end with Vanta

Vanta is a trust management platform that helps organizations of all sizes automate compliance, manage risk, and prove trust. Vanta's Vendor Risk Management solution is equipped with many features that make it easy to implement and monitor TPRM, such as:

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• Centralized and automated vendor inventory
• Dashboard tracking of vendor status, risk profile, category, etc.
• Automated risk assessments and templates
• Auto-scoring of inherent risks based on configurable criteria
• Pre-built security workflows
• 300+ integrations with popular platforms

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One of the benefits of using Vanta is that you get access to AI and automation capabilities that reduce up to 90% of your team’s work. Watch this webinar to see how Vanta can support your TPRM program.

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Additionally, as you mitigate third-party risks and improve your security posture, you can showcase your efforts using Vanta’s Trust Center. It lets you demonstrate trust in real time to customers and prospects.

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Want to explore Vanta with your risk team? Schedule a custom demo today.

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