TPRM is an essential tool for every organization, especially those who engage with third-party vendors. These vendors pose potential risks to organizations’ security, and TPRM can help prevent breaches when utilized correctly. But what is TPRM, and what are the risks that come with third-party vendors?
What is TPRM?
Third-Party Risk Management (TPRM) analyzes and controls third-party vendors and the security risks they may potentially pose. TPRM mitigates issues and risks before they happen. It’s an important tool every business needs.
Everything is online now, in clouds and analytics platforms, so that multiple businesses can access them. Vendors can provide cloud infrastructure and advanced computing, but this comes with risks.
Common Third-Party Risks
Third-party vendors can bring a multitude of risks with them, and we’ve outlined a few.
- Cybersecurity: cyberattacks, malware, and data breaches can threaten client and company data. The interconnectedness of complex cloud systems is a source of risk.
- Environmental, Social, and Governance (ESG) Risk: When laws and policies your organization has put into place regarding the environmental impact, the use of resources, sustainability initiatives, and the treatment of those in their employment isn’t followed by the third party.
- Compliance Risk: Violations of a law or regulation that a third party is contractually obligated to follow.
- Reputation Risk: Damage to the public’s perception of your company. This can happen when third parties disclose customer information, violate laws and regulations, don’t deliver on products, have poor customer service, or drop in the quality of their services or products.
- Insider Threats: Because third-party vendors hire their own employees, there is the risk of insider threats from the third-party team.
- Operational Risk: Inadequate or failed internal processes, people, and systems from the third-party vendor. Failed internal processes can occur when the third party is using older, unreliable technology. Individuals within the third party can contribute to inadequate processes if they are poorly trained. Regardless of the reason for the failed process, if the vendor’s systems go down, you will be affected.
- Financial Risk: Potential negative financial impact on your organization because of a third-party relationship; this can be from high costs and lost revenue.
- Transaction Risk: Failure of a third party to deliver promised services or products.
- Strategic Risk: For companies, strategic risk can occur when a third-party vendor it has a relationship with makes decisions or implements policies that do not align with the organization’s strategy.
These are risks that can wreak havoc on any company or organization, no matter the size, but TPRM can help reduce the risks.
Benefits of TPRM
Fortunately, there are TPRM companies and software that can help mitigate and analyze the risk that vendors may pose.
- Vendor Risk Assessment – A TPRM company can help bring more attention to issues from vendor relationships by running analytics and analyzing risks. Assessment tools can help companies develop a ranking system for their third-party vendors so they know which ones pose the most risk.
- Vendor Risk Monitoring – Organizations can monitor their vendors more efficiently through TPRM software and track performance.
- Automation and Workflow – Operations and business goals are constantly evolving over time. A TPRM can help a business automate certain operations as changes occur.. These processes can include contract reviews, updates, and setting up meetings when there are changes in the system, and assessments themselves can change because of alterations to technology or infrastructure.
- Remediation – If a vendor has a breach in their system, anyone affected needs to act quickly. TPRM can support these alerts and remediation and offer solutions.
Some current TPRM trends are:
- Ransomware – Cyber Security breaches have been increasing, and the future will only see a further increase in ransomware as cybercriminals perfect their methods. Third parties are a major target because of the volume and critical nature of the data and systems they can access.
- Compliance – Third-party organizations can be compliant but still susceptible to risks. Compliance standards and frameworks will soon evolve to provide greater insight and clarity into compliance.
- TPRM Awareness Increases – Third-party risk management software is being discussed more often now due to recent data breaches. More awareness has been raised about the importance of this protection, and third-party programs will be measured on their ability to control risk without hindering business operations.
- Vendor Management: Third-party related teams have become part of the workflow, and they are involved in everything, including the consumption of risk intelligence.
- Increases Focus on Vendor Screening – Organizations are developing realistic approaches to establishing the risks that third parties pose upfront. Before sending a third-party assessment, easily accessible information regarding third-party performance through passive cyber scanning, business event correlation, breach occurrences, ESG comparisons, and financial scorings can present a useful picture.
- Post-Contract Performance: A third party’s risk should not only be assessed at their onboarding stage or contract renewals but at other times as well. This way, the risk is addressed at every stage and evaluated.
As technology advances, so does the risk of cybersecurity threats and risks posed by third-party vendors. Make sure your organization is performing risk assessments to understand the risks a potential vendor may pose to your company and consider investing in TPRM software.