Best Practices to Govern Third-Party Vendor Risk Management

Best Practices to Govern Third-Party Vendor Risk Management

By: Beaconer, Feb 27, 2024

Best Practices to Govern Third-Party Vendor Risk Management

Your company must identify the types and the number of risks that are linked with every product or service offered by your vendors. It can help you effectively manage your vendor risks. An extensive vendor risk assessment will help ensure that your vendors have sufficient risk management practices and controls in place for mitigating the risks effectively.

Content

An extensive vendor risk assessment is crucial to managing every third-party relationship. Identifying the risks linked with every vendor and assessing their risk management practices and controls can help you avail the key insights that will aid you in mitigating future risks and safeguarding your organization.

What is Third Party Risk Management?

Third-party risk management is an extremely vital component across every business strategy. It is all about identifying, assessing, and managing the risks that are linked with engaging third-party vendors, contractors, and other external partners in terms of offering services or products to your company.

Companies can add value to their business by mitigating the impacts of such risks by knowing the possible security risks that come with third-party partnerships. For reducing such risks, you need to get this done effectively while companies should know about the varied forms of third-party relationships and the risks con

Companies should monitor and audit the existing partnerships daily to stay abreast of the changes to the activities or relationships impacting their risk profiles. Lastly, implementing robust controls across the security policies and procedures helps ensure that they are well-positioned to respond quickly to evolving threats and issues.

About the Fourth Parties

Fourth-party risk management generally refers to the risks that the suppliers or the vendors get contracted through the third parties engaged by the company. These are the companies introducing more risks into the supply chain of a company. For instance, if a firm is contracting with a cloud service provider, then this provider might contract with the data center provider. The data center thereby becomes the fourth party to the company.

The fourth-party risks are often challenging to manage as the company might not deal with the direct relationship or control over them. Reportedly, around 38% of the companies have reported that third-party data breaches were mainly caused by the “nth” parties, indicating that the risks arrive out of the third, fourth, fifth, sixth, etc vendors. The third-party risk management strategies will even vet the fourth-party risk management that your vendors are working with.

Impact of Third-Party Risks on Your Business

It is common to outsource and work with third parties for businesses today, and so are the data breaches while many of them arrive out of third parties.

The impact of the third-party breaches proved disruptive and had major consequences for the impacted business. The impact ranges from the failure of internal controls, disruptions to operations, lawsuits, internal and external outages, regulatory fines, and loss of trust among employees and customers. This is the reason why you need a robust third-party risk management program in order to mitigate the outsourcing risks.

Get started: Request a one-to-one Demo!

Book a demo

TPRM Best Practices for Enterprises

Third-Party Risk Management (TPRM) is crucial for enterprises to mitigate potential risks associated with their vendors, suppliers, and partners. Additionally, fostering a culture of security awareness throughout the organization and ensuring compliance with relevant regulations are integral components of effective TPRM strategies for enterprises.

Adequate Due Diligence and Monitoring

Gartner reported that 80% of the legal and compliance leaders have reported that the third-party risks were identified after the initial onboarding and the due diligence. It indicates that the firms need to properly evaluate and monitor the third-party risks that result in financial loss, data breaches, legal penalties, and reputation damage. It is essential to conduct enough due diligence before onboarding the suppliers and vendors to mitigate managed third-party risks.

Due diligence should include financial stability, background checks, security controls, and reputation. After a vendor gets onboarded, constant monitoring should be enforced, ensuring that they are maintaining security and compliance standards. It includes regular security assessments, audits, and compliance checks.

Constant monitoring helps you identify and address the evolving risks before they turn into major issues. It allows the firms to respond quickly to incidents or breaches, reducing the impact on business.

Implement Access Control for Third Parties

Whenever you are engaging with third-parties for your business, they are accessing your information and data important for your business operations. Furthermore, 64% of the companies still need to identify the parties having access to the highly sensitive data. 

You should have the ability to place the third parties under scrutiny or have control over the security practices of every third party. But, you can gain control of whatever they are accessing, when, and to what extent. Use identity and access management and a zero-trust approach, ensuring that only the authorized users and the systems are accessing the sensitive data.

Depending on Risk Intelligence

Due diligence is the thing that businesses often need help with whenever it comes from third parties. But you must always pay attention to it.

Although it is a time-consuming and tiring process, you are not alone in this journey. Use the existing information that you have related to the third parties for conducting background checks and assessments. Additionally, use the existing technologies for analyzing the third-party risks.

Risk Intelligence often involves the analysis and monitoring of data across various sources for identifying and assessing the possible risks to the company. Companies should leverage risk intelligence tools and techniques for identifying and emphasizing third-party risks like compliance violations, cybersecurity threats, and reputational risks. Threat intelligence will help companies proactively manage third-party risks and respond quickly to evolving threats.

Relationship Segmentation

Reports show that 60% of the companies are engaging with over 1000 external third parties. Whenever you work with these ginormous numbers of third parties, it becomes impossible to track each one individually.

In such scenarios, it is advisable to segment these third parties into hierarchical relationships. The approach involves grouping the third-party relationships into distinctive segments on the basis of their risk profiles. Such risk profile of every segment gets determined through the evaluation of numerous factors like the criticality of the third-party to businesses, amount of data accesses or access to sensitive data, security controls, and the entire regulatory environment where they are operating. 

After the segmentation of these relationships, companies can emphasize their risk mitigation efforts and allocate the resources where they are required. The high-risk segments will need greater risk assessments and constant monitoring, while low-risk segments may need periodic checks.

Elevate Your Third-Party Risk Strategy: Secure Your Free Demo Now!

Book a demo

Leveraging the Potential of Automation

About 36% of the companies have got their processes automated in terms of risk identification and mitigation for third parties based on surveys. As an outcome, several companies depend manually on intensive processes and overworked staff for the management of third-party risks.

Using automation can aid processes like data collection, risk assessment, compliance monitoring, performance monitoring, vendor onboarding, and contract management, resulting in better third-party risk management and more efficiency. Furthermore, it aids in the unification of the risk management functionalities across the departments, reducing manual data entry and errors to help in creating a centralized risk repository.

Additional Considerations for Vendor Risk Assessments

Ensure that you are done with the vendor due diligence prior to the execution of the vendor contract, which is important. It is essential to consider that the vendor risks and the risk management practices change with time. It is for this reason that vendor risk assessment is never at its completion. You are required to re-evaluate the risks across vendor engagement, refresh the due diligence along with the documentation, and validate the vendor control all around the lifetime of the vendor relationships.

The following are a few suggested intervals for the vendor risk assessments:

  • Every vital and high-risk engagement should be re-evaluated at least annually.
  • Moderate engagement to risks should be re-evaluated and assessed every 18 months to two years as it depends on the products and services.
  • Low-risk engagements that generally do not need extensive due diligence, however, should get re-assessed every two to three years before the renewal of the contract.

Remember that frequently, vendor risk re-assessments and evaluations are required whenever a vendor is experiencing issues like a declining performance or data breach. Your company might determine the frequency and the rigors of vendor risk assessments however, it is essential to ensure that the practices are reflecting regulatory expectations that get documented and are consistently executed.

Conclusion

Third-party risk management today has become a priority for success across the business environment. The supply chain forms the backbone of your business, and we aim to safeguard its security and integrity. You can now scale and maintain a business by engaging third-party business providers. But, you can effectively manage the risks of engaging them using out TPRM software platform, Beaconer. We offer a comprehensive solution that brings all your third-party relationships under one roof allowing you to manage and mitigate the possible risks seamlessly.

Author Bio

Nagaraj Kuppuswamy

Nagaraj Kuppuswamy is the Co-founder and CEO of Beaconer, an esteemed enterprise specializing in managed third-party risk using the cloud native AI based solution. With an extensive portfolio of accolades and industry certifications, Nagaraj stands out as a seasoned expert, boasting over 16 years of dedicated involvement in the field of Cybersecurity. Throughout the course of their career, he has predominantly focused on elevating the realm of third-party risk assessment.

risk

Don't let vendor risks threaten your business.
Take charge with Beaconer's cutting-edge third-party risk management solutions and see the change.

Book a Demo