Typically, third-party risk management of TPRM is aimed towards procurement, management of relationships, execution of contracts, and conducting quarterly business reviews. However, organizations these days rely on vendors fulfilling their main business objectives and supporting the competitive edge with the measures for proper vendor risk management.
Reports of security breaches, economic losses, and regulatory fines due to incidents involving third parties are growing. Since the vendors are at fault, the companies are normally responsible for this. As liability can never be outsourced, the TPRM programs should manage this growing amount of risk.
In our post today, we will share some practical advice on integrating the third party risk management processes involved with the current sourcing and procurement functions, overseeing the whole vendor life cycle, and scaling the programs that meet the new set of challenges.
About Third Party Risk Management
The global market for third-party risk management was valued at $6 million in 2023 and is forecasted to register a CAGR of 15% between 2024 and 2032. Managing third party riskis important for businesses; however, it often lacks constant monitoring, reporting, and numerous blind spots that can create challenges, leaving companies at risk of data breaches and other impacts.
TPRM is the process of ensuring the use of third parties and service providers does not create an unacceptable potential for disruptions in business or adverse impacts across business performances. Since third parties are technology partners with complex IT solutions, there needs to be more security controls and cyber risks introduced into this business space.
Third Party Risk Management (TPRM) Categories
Numerous companies are engaging third parties, allowing their critical services to increase their exposure to businesses. The higher regulatory expectations require constant monitoring and management of third-party performance and risks.
The risks are often linked with the third-party relationships that get scattered through the numerous business segments. There are normally three fundamental categories of third-party risk management, as they are listed below:
- Financial TPRM: It is the risk category making the third to have detrimental financial success or reputations of the entities.
- Operational TPRM: This risk category reveals that the third party disrupts the entity’s operations.
- Legal and Regulatory TPRM: The risk implies that the third party impacts the entities or their compliance with third parties across the local regulation, legislation, or any agreement between these parties.
Challenges of Third Party Risk Management
A couple of challenges companies encounter is to manage the third-party risk and issues towards non-compliance as follows:
Greater Complexities to Vendor Networks
These days, the firms handle hundreds of vendors, each with its individualized subcontractors. Third-party risks happen at any time across the larger network, and it is important to protect businesses from cyber threats. The real challenge lies with the vendor offering needed specialists; however, they need to assume the real responsibility for risks that arise with the expert services.
Lack of Policy Awareness & Training
Several firms are having a flop across tracking vendor-related risks that are in line with the internal certifications and policies. It is the outcome of operational problems. Additionally, whenever, the policy of the company needs to effectively communicate to the third parties as there are potential gaps between the expectations of the parties, impacting the ability of the third parties to assure compliance.
Greater Regulatory Pressures
Matching the company’s policies regarding third parties to regulatory needs and rules is always a requirement. To avoid placing things in position, firms face notable issues that lead to non-compliance.
Unstructured Third-Party Monitoring Processes
It is often challenging to monitor third-party relationships whenever the firms are using decentralized and undefined third-party monitoring systems that are tough to measure. Recently, the firms still need to monitor their third parties due to undefined metrics and unstructured processes.
Overcoming Challenges Linked With Third-Party Risk Management
There are generally three main strategies to help your company bolster the third-party risk management challenges as follows:
Validating Self-Reported Questionnaires With Independent Risk-Based Assessments
Companies should offer individualized third parties offering risk-based assessments of the third parties, validating their findings out of the questionnaires that are realistic showcases for the condition of third-party security. Companies should rely on the main cybersecurity areas indicating the potential breach.
Using Constant Monitoring Assessing Third-Parties
Implementing constant monitoring processes in third-party risk management increases visibility into the third parties’ security posture. Continuous monitoring can help bolster third-party security by consistently holding them accountable. However, this reduces the risks posed by security incidents.
Automating Third Party Risk Management Processes
The automation of third-party risk management can create standardized structures applied to every new or existing third-parties. Your company can automate the processes dealing with third-party risk management into discovering the latest technologies mechanizing the evaluation processes for the third-party vendors. It can effectively help you optimize the resources while ensuring the time of the company dealing with the impactful things.
Closing Thoughts
Effective management of third-party risks is an intricate process. Numerous businesses have come closer due to the unhealthy relationships dealing with third parties they had earlier. Incorporating an effective third-party vendor risk management program should be undertaken by your department. Also, use the risk-first outlook, defining the different attributes that are essential to update.
Author Bio:
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 their career, he has predominantly focused on elevating the realm of third-party risk assessment. You can connect with him through Linkedin.
