With the development of digital transformation, the extent to which businesses depend on third parties has surged in the last few years. Third-party dependencies are becoming increasingly common as businesses find it easier to connect and scale their operations across various regions and countries. They’re also harder to track and monitor, making it difficult for businesses to ensure third parties and even fourth parties are fully meeting their requirements.
The solution to these pains are a structured scalable Third-Party Risk Management program, that can grow as your business develops. An effective Third-Party Risk Management (TPRM) process allows businesses to be proactive instead of reactive, identifying, assessing, and managing third-party risk throughout the vendor lifecycle. It will also enable the business to feel confident in their risk position.
Two-thirds of businesses indicate that their TPRM programs are in the earlier stages of maturity (Compliance Weekly). As you can see, although most firms have established some form of third party risk program, they still are unable to assess all of the vendors that matter. Many struggle with simple elements of TPRM, such as:
Often this is due to organisations stretching resources and technology across what is quickly becoming a dynamic and complex process of managing third-party risk. Essentially trying to ‘run before they can walk.’
To tackle this, businesses need to start viewing TPRM as a journey rather than something that can be fixed overnight. To progress a Third Party Risk Management program, organisations need to view the journey in key steps instead of taking the ‘nuclear’ approach and attempting everything at once. It’s a constantly evolving process designed to help businesses stay resilient in a fast-moving environment with ever-changing suppliers.
Companies need to consider the level of resources they have and what they can achieve within their resource limits. As your team begins to grow, so will your third party risk processes. As these formalise, you will need to ensure the processes are documented and aligned to your TPRM program objectives.
Organisations should have a list of third-party vendors, then move onto vendor tiering to determine how much attention each vendor should be given and how closely they’ll need to be assessed and monitored. Once established, these vendor tiers can be used as templates for onboarding and categorising future vendors.
Check out the full table on our handy infographic here!
To decide on the approach you will take for tiering, you must know your key stakeholders’ focus i.e. anop risk vs financial focus.
Learn more about effective tiering, read our blog ‘Tiering 101: The Most Effective Method to Ensure You Are Assessing The Right Vendors’ here.
Now your tiering is sorted, it’s time to look at your risk profiling! Risk profiles can be built up through the use of assessment questionnaires to determine whether or not a vendor has sufficient security controls in place. It’s a good idea to have targeted question categorise based on what vendors provide to the business.
It’s important to note here, that unfortunately, there isn’t a ‘one size fits all’ approach to this. An organisation should be asking questions that are tailored to the relationship it has with particular vendors, even referencing any contractual requirements and regulations where appropriate.
It’s important to note at this stage that most organisations will want to work with vendors to fill in any security gaps. With the right approach and attitude, it can be a mutually beneficial process. Assessments can even become more targeted for vendors with a particularly big role to play.
Top Tip: It’s a good idea to separate questions out into categories such as Physical Security, ABC, Governance, Access Control, etc., which will allow third parties to be ‘ranked’ in areas in which they’re strong, and also areas in which they may fall short.
Read our paper on how to effectively approach questionnaires for your third parties, here!
Sooner or later, there will be a tipping point for businesses as they grow and so too do their list of vendors! The Third Party Risk Management process will need to be levelled up. A smaller business may be able to manage this process manually using spreadsheets, but that will rapidly become unsustainable as a way of tracking which vendors have answered what. Eventually, organisations will eventually need a dedicated software solution tool that is scalable from the outset, leveraging the resources that become available as the business itself evolves.
If this is your business, why not check out our tooling paper that guides you through picking the right software solution for you. Check it out, here!