Every organization, regardless of its size, is prone to risks that range from the threat of ransomware to natural disasters that can disrupt operations. Risk management is a huge practice that aims to understand and mitigate the impact of risks before, during, and after they occur.
Each of the third parties you are working with introduces additional risks to the businesses along with the inherent risks in the company. Third party risk management, or TPRM, is the practice that falls under the segment of risk management that gets completely assessed by each vendor, SaaS platform, or service provider before onboarding and throughout the relationship.
About 80% of risksare often connected to third parties that are identified after the vendor's onboarding. This indicates that just 20% of third-party risks are known before the parties gain access to your sensitive data, networks, and customer data.
It is noted that every organization of every size calls for improving their third-party risk management practices. But, how would businesses know about the risks and manage them in a better way?
What is a Third-Party Risk Management Framework?
The third-party risk management framework is a well-organized method for identifying, evaluating, or managing the risks linking third-party associates and vendors. A third-party vendor is a group of people who work independently of a company, delivering goods, offering services, or performing on behalf of the firms.
A framework of the entire third-party risk management or third party risk assessment often comprises collective rules, policies, practices, and controls intending to help the firms in the management of risk connected to the third-party suppliers.
These frameworks intend to offer a repeatable and consistent approach to managing third—or fourth party risks across the company or business.
Implementing Third-Party Risk Management Measures
A well-designed and implemented third-party risk management program can help to manage and identify risks associated with your vendors. Let us help you get started to design a robust risk management program.
Design A TPRM Framework
While assessing your company, it is important to develop and implement additional business-related security controls to the framework addressing your business's security needs. After its completion, the entire risk management framework is used for the evaluation of the vendors, ensuring that it meets proper regulatory needs and addresses the risks that pertain to the company as a whole across the product or service level.
Creating A List of Every Third-Party Vendors
It is important to maintain a central repository of different vendors by offering services or products to your company. Every vendor and the services they offer should get appropriately documented from the vendors offering core business functionality to the smaller vendors who are offering their support services.
Each department is required to get involved in the process of identifying the areas of risk where the services and the vendors they offer overlap. It is important to maintain better clarity through each step of the TPRM processes without any stone lying unturned. Risks might arise from any vendor, irrespective of their size.
Classify Every Vendor
After creating the proper vendor list, each of them should be classified appropriately using a form of risk rating, with numerous companies choosing high, medium, and low, and a few companies using A, B, or C. Establish an intuitive rating system and ensure communicating with every stakeholder in the company. Identify every risk on the basis of the systems, data, and networks that the vendors have access to.
You can prepare a vendor onboarding or an annual questionnaire with the aim of classifying the company's third parties. The process remains important for capturing vital details related to the service like information on the location and the amount of data that is stored or processed across various other elements dictating the kind of assessment that is required.
Calculate The Vendor Risk
Each of the vendors poses varied risks to the business. Vendors offering key business processes or having access to sensitive data pose a bigger threat to the company compared to vendors with limited access. If you find a new vendor it becomes tough to calculate the risks as you are often less familiar with the processes of cybersecurity they have in order. It is where third-party assessment is performed through the identification of the vendor risk from managerial, operational, and technical standpoints. After the risks are identified, they are often calculated the chances they would take place with their impact whenever it takes place.
Assigning Security Risk Rating For Every Vendor
They are assigned a security risk rating relying on the vendor risk. After assigning the security risk rating, senior management emphasizes the high-risk vendors and the risks that are connected to those vendors. For the varied risks, the companies should adhere to the guidelines for different risk categories:
- High – Try developing the corrective measures instantly
- Medium – Developing the corrective measures in a reasonable time
- Low – Decide on whether or not to accept or mitigate the risks
High- or medium-risk vendors are often considered any vendor handling core business operations or working on sensitive data. Low-risk vendors have limited or no access to sensitive data or fail to interact with vital systems and networks.
Areas of High-Risk
TPAs often identify the specific areas of your risk profiles that are high risk whenever the assessment is done. This would include the company's cybersecurity practices and business continuity and disaster recovery planning. After these high areas of risk are identified, the company places additional controls over them. Whenever the assessment is performed pre-contract, the company should force the vendor to mitigate or remediate greater risks before committing them contractually.
Addressing Security Risks
After the vendors are identified and linked to the risk rating, management would often decide on ways to respond to every vendor. Risks happening in each vendor are often accepted, refused, mitigated, or transferred. Every risk, regardless of the designation, requires complete documentation for the management review and an office risk record.
Implementation of the controls like using firewalls, encryption, and multi-factor authorization to help safeguard the assets and mitigate the risk. It is important to address such risks by writing the controls and needs into the contracts with the vendors so that they know about the expectations and take action whenever required.
Conclusion
It is important to note that even the best-laid third-party risk management strategy would fail. Onboarding the company into a new program is important for assembling the required resources, assembling the dedicated team, and offering appropriate training to allow the stakeholders to protect against third-party risk.
