The third-party risk management lifecycle is a process that organizations adopt to ensure they are properly managing the risks posed by their vendors, suppliers, and other third parties. This process includes several steps, from identifying potential risks to monitoring those risks over time.
Third-party risk management involves monitoring threats a supplier may create or present to an enterprise. As with all processes, TPRM is cyclical – this is a process you need to revisit every year to ensure you reduce risks from third parties.
There are stages in third-party risk assessments; knowing these stages is essential in TPRM planning. Secondly, internal conditions can affect the performance of your third-party relationships and supplier capability to deliver services.
Preparation
The first step in managing third-party risks is preparing for them. This includes creating necessary policy documents, establishing processes for due diligence, confirming legal responsibilities, and carrying out other related tasks.
Additionally, it’s important to define roles and responsibilities within the organization so that everyone involved understands their part in the process.
Identify Risks
The second step in the third-party risk management lifecycle is identifying potential risks associated with engaging with a particular vendor or supplier. To do this, it’s important to conduct thorough due diligence and research to accurately assess the risk level posed by a particular third party.
This can include things like reviewing their financials, conducting interviews with key personnel, and examining past performance data.
Once potential risks have been identified, the next step is assessing them and determining their severity. This involves analyzing the scope of the relationship with your third party and any associated compliance requirements or regulations.
For example, if a vendor stores sensitive customer data on their servers, then there may be additional security measures you need to put into place to protect that data from unauthorized access or tampering.
Monitor Risks
The final step in the third-party risk management lifecycle is to monitor those risks over time. This entails regularly reviewing vendor contracts and ensuring all requirements are being met on both sides of the agreement.
It also means staying abreast of industry changes that could affect your relationship with your vendors or suppliers (e.g., new regulations or technologies). it’s important to conduct regular audits and reviews so you can identify any issues early on and address them before they become major problems down the road.
Do you know what is meant by the term third-party risk management lifecycle? It’s an important concept to understand for any business that relies on external vendors for services or materials. Third-party risk management involves identifying, assessing, and mitigating risks associated with engaging outside sources in your operations.
The lifetime of this engagement process is described as a “lifecycle,” which encompasses different phases from initiation through contract completion. This blog post will discuss each phase of the third-party risk management lifecycle so businesses can better understand their vendor relationship effectively and safely.
Third-party Risk Management
Third-party risk management (TPRM) is critical to any organization’s cybersecurity strategy. It manages and mitigates the security risks associated with all third-party vendors and partners, including internal and external parties with access to or handling sensitive data.
The TPRM lifecycle outlines organizations’ steps to manage their third-party risk effectively.
The first step in the TPRM lifecycle is Vendor Identification & Assessment. This involves identifying all vendors, partners, and other third parties with access to sensitive data and assessing them for potential risks.
The assessment should include a thorough review of each third party’s policies and procedures regarding data security and an analysis of their technical capabilities, such as firewalls and encryption technologies.
Next comes Contract Negotiation & Execution. Once a vendor has been identified as a potential risk, it must be negotiated to establish acceptable terms for doing business together. This includes reviewing contracts to ensure that they accurately reflect both sides’ desired security controls and expectations. At this stage, organizations should also consider setting up automated processes for monitoring compliance with contract requirements.
Monitoring & Remediation. As part of this step, organizations should continue to monitor their third parties on an ongoing basis for potential risks or breaches in security protocols. Any detected issues should be addressed quickly by implementing appropriate remediation measures such as additional training or system upgrades.
Organizations should also consider periodic reviews of their policies and procedures related to TPRM to ensure they are up-to-date with current best practices.
The Stages of the Third-party Risk Management Lifecycle
The third-party risk management lifecycle typically consists of six stages: identification, qualification, onboarding, oversight, termination and archive. Each stage is incredibly important and carries its own responsibilities.
During the identification stage, organizations should identify the third parties they are working with, while qualifying includes assessing the party’s ability to provide requested services or products. The onboarding stage involves creating necessary agreements, setting expectations and allocating identifiable roles and responsibilities.
Throughout the ongoing oversight phase, organizations should regularly monitor compliance and review and track risks to ensure that objectives are met. Then upon completion of a project or when an organization no longer needs to work together with a third party, a termination process must be put into place.
Finally, archiving helps wrap up this entire cycle by ensuring that important documents are retained for current and future reference and that any information associated with the third party is securely organized for storage or removed from internal systems.
Managed effectively throughout every step of this lifecycle, organizations can efficiently build strong partnerships while minimizing their associated risks.
Risk Scoring Best Practices
List the vendor’s risk assessments to compliance requirements. Questionnaires can be a good way for a business to understand its compliance requirements. You need to conduct a detailed assessment of vendor risk by mapping compliance with vendor risk questionnaires and other data.
Pre-Contract Risk Management
Risk management in advance of contracting begins when you sign with another vendor. Once you identify the new third-party services, you should conduct the risk assessment. Depending on how many data breaches are reported, you have to examine the types and consequences that a breach might have on the company.
Identifying such inherent risk factors is crucial for conducting due diligence on their existence. It’s a critical step in your security strategy because it enables you to understand third-party vendor policies.
Begin the Onboarding Process
It does more than introduce suppliers to your business and your working style. This may require access to your systems and processes. It requires you to upload information about the suppliers in your system to provide complete access to their participation in your organization.
Onboarding should include an approved formal procedure. It is necessary for suppliers for all contractual terms to be documented. Conformity is fundamental to any training procedure. The deadline to integrate the supplier into your organization is realistic.
Send a Risk Questionnaire to Shortlisted Third Parties
Distribute an online questionnaire to third parties wishing to provide services. The questionnaire covers questions about a range of topics. It will help to customize a questionnaire that provides answers to TPRM questions.
And not just about risk and breaches but about remediation as well. Some businesses fall under the radar of threats, and their actions and measures to reduce risk can also help evaluate their risk profiles.
Assessing Vendors & Remediating Risks
Risks from various sources can vary according to your needs and other factors in the case. In addition, tiers of governmental entities may also differ in terms of their criteria. Some vendors will have different requirements from cloud hosts regarding evaluation.
Organizations that are unsure of TPRM programs are often required to create individual surveys for the different vendors by using spreadsheets to determine their needs. Response levels to this survey may vary in detail and completeness, causing difficulty to assess overall risks and necessary controls.
Vendor Assessment & Remediation Best Practices
Leverage shared libraries, a third-party risk management solution for an understaffed team. Data collection processes and vendor back-and-forth communication are the major time requirements for reduction and full assessment assurance.
In addition, regulated landscapes are evolving and require expert interpretation to understand compliance reporting obligations. Achieving compliance and meeting vendor security needs whilst maximising skills in your team is certainly a balance between the two tasks.
Implement Ongoing Monitoring
The third-party risk management lifecycle requires monitoring and does not begin once an organization has onboarding. As you get older, your relationship may change, and the provider may have access to confidential corporate details that were originally planned.
Post contract monitoring process will result to effective risk management and structured third party offboarding purposes. Continuous monitoring and point in time monitoring of key performance indicators of a third party ecosystem reduces residual risk.
Oversight of risks from third parties needs a longer-term priority. Risk assessment process are essential for managing third party risk and identifying key risk indicators in the entire third party lifecycle. Risk based due diligence should be carried out to ensure that a company is taking the appropriate precautions for their type of business.
Following a detailed risk management process helps to identify any potential risks and determine how best to mitigate them. By focusing on key risk indicators, businesses can keep track of any developing risks and take preemptive action if necessary.
Vendor Offboarding Best Practices
Here are some best practices when it comes to vendor offboarding:
Establish a formal procedure and checklist for offboarding vendors. This will help keep everyone accountable and minimize human error.
Speak with the vendor to determine any contractual or legal requirements regarding how their data should be handled when they leave.
Back up all data shared with vendors onto your secure servers if their system fails or they delete files without notice.
Ensure that any confidential data stored on the vendor’s systems is secure by wiping it from their devices before they leave.
Take some time afterwards to review the whole offboarding procedure and ensure everything was done correctly for future reference.
The audit trail will help prevent any future incidents if necessary. When you have a vendor out-board, it is important for them to verify that their staffing is correct in depreciating contractors’ equipment.
Third-Party Monitoring Best Practices
Do not ignore Fourth parties and third parties. It can feel tempting to watch closely with your third parties but neglect their third parties and third parties. If a vendor relies on the services of another firm to execute contracting operations and manage its business, your organization can potentially impact their operations.
Upon risk identification, the four main players must be identified. Consider lowering cyber security measures for third parties based partly on the risks they pose to you. Various kinds of cyber threats should be considered.
Establishing and managing a successful third-party relationship involves both parties understanding the inherent third-party risks. These risks may stem from any number of sources, including but not limited to third-party suppliers, service-level agreements, and varied risk assessment processes.
Through creating checks and balances in all areas of the relationship, both parties can ensure that the risks are minimized and that the agreement will be mutually beneficial.
Vendor Sourcing and Selection Best Practices
Utilization of vendor risk management databases Many companies continue to use spreadsheets to correlate vendor risk assessment questionnaire responses with other requirements.
Ensuring that third-party risk is correctly managed should be an integral part of any organization’s risk management strategy. Third-party risk assessment, third-party lifecycle management, and relationship management are all critical components of this strategy. Third-party contracts should clearly outline the scope of work and the terms and conditions and provide sufficient oversight by the organization.
This will help ensure that a third-party partner is adhering to applicable standards and regulations to protect both parties from liabilities. Proper management of these aspects can enable organizations to maximize their benefits from working with vendors while minimizing their exposure to potential risks.
Consider using an external vendor risk management system for faster selection. Based on standardized questions on profiled risks, each provider has a different risk degree profiled.
Conclusion
As third-party relationships grow, performing a comprehensive one-time risk assessment is important. This will help identify potential compliance risks, supplier risks, and any information security issues.
Once the initial assessment is complete, the real risk begins – ensuring that all relevant stakeholders are fully aware of their responsibilities and obligations. A regular review process can help organizations stay on top of any compliance or security regulations changes and take proactive steps to reduce the associated risks.
The third-party risk management lifecycle is essential to any organization’s cybersecurity strategy. By following these steps—including vendor identification & assessment, contract negotiation & execution, and monitoring & remediation. organizations can effectively manage their third-party risks while maintaining high data security protection levels.
Chris Ekai is a Risk Management expert with over 10 years of experience in the field. He has a Master’s(MSc) degree in Risk Management from University of Portsmouth and is a CPA and Finance professional. He currently works as a Content Manager at Risk Publishing, writing about Enterprise Risk Management, Business Continuity Management and Project Management.
