Tips on how to create a stronger third-party risk management program

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With as much as 51% of companies
victim of a data breach related to a third party, the risks of working with external partners have never been clearer. Moreover, third-party ecosystems are only continuing to grow, according to the Institute for Collaborative Working, and as much as 80% of direct and indirect operating costs of a company comes from third parties.

As vendor and supplier vulnerabilities continue to plague nearly every industry, teams are struggling to manage the associated risk volatility throughout their supply chains. The good news is that a strong third-party risk management (TPRM) program, based on a solid workflow for onboarding as well as ongoing monitoring, can help mitigate the impact of associated risks.

Here are four practical tips for advancing your TPRM program as our third-party networks grow ever larger and more complex:

1. Understand inherent risk and how it should be incorporated into programs

Inherent risk, or the amount of risk that exists before controls are in place, should be continuously assessed throughout the third-party risk lifecycle. So how exactly can you quantify inherent risk and build it into your TPRM program?

There are two essential elements. First, it is important to assess the inherent risk at the outset of any supplier relationship, with riskier third parties requiring additional due diligence. Risk factors to consider include what data the third party will have access to, whether they operate in another country with different compliance standards, does the business outsource to others (or fourth parts), etc. With these factors in mind, you can assign a third party an initial “risk score” and ensure you include the correct admissions questions in your onboarding process.

Second, it is important to categorize third parties according to inherent risk levels – from those that pose low risk, to those that pose moderate risk and need to be monitored, to those that are critical to your business operations and pose a risk. higher. With these risk levels in place, you’ll be in a better position to monitor and assess your third parties throughout their lifecycle, ensuring you’re focusing on the right places to mitigate the most damaging risks.

2. Comprehensive threat mapping and risk-based controls for critical third parties

Once you have identified your critical relationships with third parties, the next step is control mapping. This is where a single source of truth and real-time information becomes essential: with unified data governance, organizations can effectively and efficiently track data throughout the third-party lifecycle. Plus, by integrating data ownership and accountability, automated system controls and monitoring, and regular audit cadences directly into your risk management program, you’ll gain visibility into key third-party risks before they happen. affect your organization.

And, should incidents occur, you’ll be prepared to mitigate them, quickly and with limited downtime. The key here is to take a truly integrated approach – involving not only risk and security teams, but also legal and procurement teams to ensure that the contracts you have in place with suppliers leave room for manoeuvre. .

3. Calculate residual risk and use it to determine ongoing review cadences

A residual risk score, calculated from a combination of previous risk ratings as well as inherent risk, can be a useful metric in determining how often you will need to perform third-party audits.

Your review cadence will, of course, vary depending on the size of your team and your goals. However, for example, you can choose to perform quarterly reviews for high risk, semi-annual reviews for medium risk, and annual reviews for low-risk third parties.

Once you have determined your review schedule, a useful best practice for fostering positive relationships (and achieving better audit results) is to communicate the schedule to auditees so they know when your organizations will test them and what that you will test. versus.

4. Incorporate external assessments and service offerings into your program

In addition to your internal risk assessments and ratings, you may also consider external ratings to determine which third parties to work with and how to conduct your monitoring processes. Provided by a trusted, independent source, these objective ratings can help you compare a third party and flag any changes in their risk and compliance posture once you start working together, allowing you to address any shortcomings . In other words, they provide additional perspective and strengthen your TPRM program.

To effectively analyze these external ratings, organizations need to integrate data from independent sources directly into their TPRM technology solution. In particular, cloud-based technology is indispensable for risk management programs. Not only does it offer robust integration capabilities, but it also provides a single, unified source of truth; real-time continuous data; and the ability to perform top-down risk assessments and testing, all without the risk of manual error.

Today, third parties are considered an extension of an organization and must act in accordance with the organizational principles of the company. As third-party (and fourth- and fifth-party) networks continue to grow and supply chains become increasingly complicated, TPRM is critical to reducing costs, meeting regulatory compliance requirements, and driving business ethical way.

Additionally, a good TPRM program actually has the power to add tremendous value to an organization. With a truly functional, transparent, and integrated risk management program, companies can make better decisions, compete more effectively, and meet the needs of key stakeholders, including board members, investors, customers, regulators and auditors.

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