For many organizations today, having an end-to-end response system for their third-party risk profile is essential. According to the 2022 PwC Pulse Survey, risk executives consider third-party risks to be one of the top five threats to an organization’s growth.

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If you want more predictability in your growth initiatives, the best way forward is to thoroughly understand the third-party risk management (TPRM) lifecycle and develop clear processes to combat vulnerabilities at each stage.

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This guide will explain the concept of a TPRM lifecycle and break down its seven key stages. We’ve also included some best practices you can explore for navigating each stage, which will help bolster your overall risk management strategy.

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What is the TPRM lifecycle?

The TPRM lifecycle is a concept that outlines the methodical risk-aware practices for managing third parties throughout every stage of your organization’s relationship with them. The need for such a structured approach stems from the diverse risk landscape organizations expose themselves to while expanding their third party network.

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Some inherent risks associated with third-party partnerships that need to be addressed during a TPRM lifecycle include:

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• Financial risks: The probability of third parties being unable to meet their obligations or otherwise jeopardizing your organization’s stability.
• Operational risks: Threats related to unforeseen process disruptions caused by third parties.
• Regulatory and compliance risks: Damaged reputation or legal standing as a result of a third party not adhering to the necessary standards and regulations. It can also pertain to your organization missing compliance because of its association with a third party.
• Cybersecurity risks: The possibility of data breaches or leaks caused by improper security policies and measures on the third party’s end.

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Benefits of TPRM lifecycle planning

Third-party risks may surface at different stages of your organization’s relationship with a partner. That’s why it’s crucial to have a continuous approach to risk management throughout the TPRM lifecycle. You can expect four main benefits from such an approach:

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1. Proactive risk identification and mitigation

By understanding the TPRM lifecycle, you can define stage-specific risk thresholds and policies, which facilitates fast and effective remediation strategies.

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2. Improved business continuity

Effective TPRM lets you develop and update contingency plans for any disruptions caused by your association with a third party. 

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3. Better vendor alignment with an organization’s goals

Both your organization and its third-party collaborators will evolve with time, and a firm grasp of the TPRM lifecycle ensures that their shared business interests remain aligned.

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4. Streamlined regulatory compliance

In many industries, regulatory issues caused by a third party can directly impact the organization partnering with it. Understanding this relationship helps you avoid non-compliance throughout your partnerships.

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7 stages of the TPRM lifecycle you should plan for

The TPRM lifecycle typically consists of the following seven stages:

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1. TPRM planning and third-party identification
2. Due diligence and selection
3. Formalized onboarding
4. Risk assessment and implementation of controls
5. Inventory and categorization
6. Ongoing monitoring
7. Termination and offboarding

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We’ll elaborate on each stage below and outline the key processes you should implement to navigate it with authority. 

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1. TPRM planning and third party-identification

The first stage of the TPRM lifecycle is all about listing and standardizing your organization’s risk criteria. You should go granular here and define all strategic risk exposure points and their tolerable limits to guide your risk team on the next steps.

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When doing so, it’s good practice to bring all relevant stakeholders together to outline the following:

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• The organization’s risk appetite
• Responsibility for all TPRM processes to ensure accountability
• The methods that will be used to evaluate third parties

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If you don’t have an existing TPRM program, you should also identify all third parties currently connected to your organization at this stage. You can do this by creating a comprehensive inventory of vendors, suppliers, partners, and other third parties you’ve onboarded so far.

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Discovering existing vendors can, however, be challenging if you have shadow IT in your organization. A lack of visibility over your risk management micro-processes can also complicate the planning phase. 

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The good news is that you can use a dedicated software solution to organize your TPRM program from the get-go. For example, you can opt for a platform that automatically detects all software providers your organization is currently using. This can save you a considerable amount of time you would otherwise spend scouring your processes and databases for shadow IT.

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2. Due diligence and selection

The second phase of the TPRM lifecycle involves the development of a due diligence process you’ll use to assess new or existing third parties. This shouldn’t be too much work if you’ve standardized your risk criteria beforehand—the criteria would work as a baseline against which you’ll compare prospective third parties.

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Still, the due diligence process itself can be elaborate as you need to gather considerable documentation from each third party, such as:

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• General business documents
• Financial reports
• Licenses and certifications
• Cybersecurity and compliance audit reports

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To streamline data collection and analysis, you should create and formalize questionnaires, preferably with automation-enabled software. The contents and structure of the questionnaires can vary greatly, though they should touch on a few universally important queries revolving around:

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• Software and infrastructure security
• Data privacy and related policies
• Business continuity procedures
• Compliance frameworks

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Combining a robust questionnaire with the necessary documentation should create a tight due diligence process that lets you assess a third party’s risk profile thoroughly. You can then turn this data into insights you’ll use to evaluate and select third parties during the procurement process.

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3. Formalized onboarding

Due diligence is your first line of defense against third-party threats, but onboarding new partners also invites new risks. That’s why you must create an comprehensive, risk-aware onboarding process—it doesn’t come as a surprise that third-party onboarding can sometimes last up to six months.

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The reason for such a lengthy process is that each third party will start having access to at least some of your information and tech stack. The more sensitive such access is, the more effort you need to invest in monitoring and limiting your risk exposure.

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To create an effective onboarding process, follow these four tips:

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1. Formalize onboarding with policies and procedures to ensure clarity and predictability.
2. Create robust service level agreements (SLAs) with each new third party to clarify expectations.
3. Create a checklist to gather necessary information from each third party.
4. Keep transparent records of the information and access shared with the third party.

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4. Risk assessment and implementation of controls

Each third party comes with specific inherent risks you must evaluate to understand whether they fit your risk appetite and what controls to put in place. When performing risk assessments, make sure to do the following:

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• Connect the assessment to relevant compliance requirements: If a third party will have access to PII, check for any applicable regulations like GDPR or CCPA to map the assessment accordingly.
• Go beyond cybersecurity assessments: Besides cybersecurity, you need to assess any risks related to a third party’s operations, finances, reputation, and other aspects that affect your organization. 
• Quantify risks when possible: Ideally, all risks should be expressed in tangible figures so that you can assign risk scores and ensure clarity while comparing third parties.

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This phase of the TPRM lifecycle is typically time-consuming and labor-intensive if performed manually. However, you can streamline the process using automated tools with features like auto-scoring and third-party categorization.

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When strategizing risk assessments and defining controls for the discovered risks, consult internal stakeholders or experts to gather comprehensive input. It’s also a good idea to use practical tools like risk assessment templates to streamline the process.

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5. Inventory and categorization

At this stage, you should have a well-built inventory that lets you regularly monitor third parties’ performance and risks. The goal is to have a unified overview of all parties you onboard so that you can stay proactive with threat detection.

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Your inventory should include a few crucial pieces of information, such as:

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• Vendor name
• Category (based on parameters like business function and software type)
• Risk profile
• Relevant notes and details (e.g., last security review)

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When the inventory is created, categorize third parties according to their risk level based on the criteria determined earlier.

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While it’s technically possible to manage your inventory with traditional tools like spreadsheets, this approach isn’t recommended because it doesn’t get you all the information you need in real time. Besides, managing such an extensive database manually will drain your resources.

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A much better alternative is a software solution that pulls data from relevant sources automatically to give you actionable insights without much effort on your part.

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6. Ongoing monitoring

Since third-party risks can show up at different stages of your partnership, your risk landscape constantly shifts. To maintain a firm grasp of your TPRM program, you need to monitor third parties at all times.

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You can schedule performance reviews at a predetermined frequency to uncover any issues that deserve your attention. You’ll also want to perform regular third-party re-assessments and security reviews to factor in new vulnerabilities.

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When doing any of the above, keep your monitoring scope broad to account for all risk types (cybersecurity, operational, financial, etc.). This might require extensive data gathering if you work with many third parties, but the process can be largely automated with the right tools.

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Most importantly, choose a solution that enables configurable dashboards containing relevant risk data. Ideally, such solutions should integrate with your existing platforms to minimize the need for manual data entry and analysis.

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7. Termination and offboarding

Offboarding a vendor might seem simple at first glance, but it carries numerous risks, most notably:

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• Contractual issues
• Data security concerns
• Miscommunication

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Without an airtight offboarding process, you might be left with many residual risks a former vendor can expose you to, even though you’re not working with them anymore. To reduce the likelihood of such scenarios, follow these five best practices for risk-aware vendor offboarding:

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1. Assess contract deliverables: Review your contract and SLA to make sure all final deliverables meet your expectations and adhere to the agreed-upon standards.
2. Perform access reviews: If a third party you’re offboarding had access to any of your systems, make sure to revoke it and double-check for entry loopholes.
3. Update relevant internal documentation: Notify your employees of the termination status and relevant procedural changes in case they had to follow any SOPs related to a third party.
4. Back up your data: Archive critical data for future reference and restrict internal access if necessary.
5. Ensure legal oversight: Keep your legal team involved in the offboarding process to avoid miscommunication and contract violations. You may also want to keep the compliance team in the loop if the partnership was subject to any specific regulations.

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Streamline your TPRM lifecycle with Vanta

Many phases of the TPRM lifecycle can benefit from the right technology. Vanta can be an excellent solution for companies running TPRM programs at scale. Its end-to-end Vendor Risk Management solution comes equipped with the AI- and automation-enabled features you need to navigate the TPRM lifecycle.

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Some of the platform’s notable features include the following:

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• Centralized third-party inventory with streamlined categorization
• Automatic third-party discovery to track shadow IT
• Configurable auto-scoring of inherent risks
• A unified dashboard with valuable data on vendor status, risk profile, category, etc.
• Built-in rubrics for vendor security review monitoring

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Watch our webinar to see Vanta in action. Or schedule a custom demo with our team today.

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