Organizations today are interconnected networks of third-party suppliers that include not just your direct vendors, but your vendors’ vendors and even their vendors’ vendors. If you aren’t careful, a problem with any of these suppliers could end up damaging your organization. In fact, a recent survey revealed that nearly half (44%) of respondents have experienced a significant, business-altering data breach caused by a third party.
Customers don’t care whether or not a problem like a data breach originated with you or with a supplier. It’s all the same in their eyes – and you get the blame. To effectively manage third-party risk, you must understand your risks holistically and manage your exposure across the enterprise with a robust third-party risk management (TPRM) strategy.
Here are five pillars of strong TPRM to help you protect your organization.
- Identify your vendors.
The first step in any successful TPRM program is to know who your vendors are, what services they provide, and what information they have access to. Do your due diligence upfront and contract with third-party suppliers that meet your standards and requirements – and that operate in a manner consistent with the way you do business. Keep your list of vendors and contractors up to date. You can’t protect yourself from third parties you don’t know about.
- Assess the risks.
Assessing the status – financial, operational, security, regulatory, etc. – of each vendor you work with is absolutely critical to a good TPRM strategy. You need to know where their weaknesses are, so you aren’t caught off-guard down the road.
Send customized questionnaires to each vendor to collect critical data, including agreements, contacts, policies, access credentials, and more. Software then can automatically score and rate responses, track any outstanding issues, and verify resolution. You also can supplement information provided by the vendors themselves with data feeds from external experts in scoring risks such as financial and cyber. Using a variety of assessment methods will give you a clear, 360-degree view of risk exposure for each third-party relationship, so you don’t end up signing a new supplier, for instance, only to find out they don’t have the financial resources to deliver a promised critical component.
- Prioritize your actions.
Once you’ve assessed and scored the risks of your third-party suppliers, classify each into categories – e.g., high, medium, and low risk – so you can prioritize your efforts according to the risks they pose to your business.
Third parties that are have access to sensitive information, handle financial transactions, or perform functions critical to your operations typically would be considered high risk. Medium-risk vendors might include those with limited access to your systems, and low-risk vendors would be those that don’t interact with critical systems or data.
The higher the risk level, the more frequently you’ll want to reassess your third-parties’ ability to meet their contractual obligations. Make sure you have complete business continuity plans from any vendor classified as high risk or above.
- Resolve outstanding issues – and insist on documentation.
You could be held accountable if a vendor violates any government or industry laws, rules, or regulations. Make sure you have the proper processes in place to evaluate and monitor ongoing compliance with appropriate legal regulations. And maintain a detailed audit trail of all documentation. To make it easy to identify urgent issues and prioritize remediation strategies, consider classifying third-party issues into categories, such as critical (maximum of 3 days to resolve), high (maximum 30 days to resolve), medium (maximum 120 days to resolve), and low (maximum 160 days to resolve).
TPRM software also can automatically send alerts for expiring documents. That way, if anything falls out of compliance, you’ll know immediately and can act swiftly.
- Monitor for changes.
Good third-party risk management doesn’t end at onboarding. It requires ongoing monitoring throughout the relationship to keep up with changing conditions with each vendor, with your own priorities, and with the world at large. Regularly reassess third parties to identify any impediments to their ability to fulfill their contractual obligations and to ensure the partnership still aligns with your organization’s goals and business objectives. Of course, monitoring only goes so far. Have a remediation plan in place for any critical risk and vulnerabilities that arise.
Vendor problems ultimately become your problems – but with effective TPRM strategy, processes, and software, you’ll have a strong foundation to protect your organization from third-party misstep
For a practical look at effective third-party risk management, check out how Stanley Steemer upgraded its TPRM program to expand revenue.
If you’re ready to draft an RFP for a third-party risk management solution, download this list of the most critical TPRM-related questions, which can be easily modified to suit your needs.