Why Does Your Business Need Third-Party Risk Management?
What Is Third-Party Risk Management?
Third parties, like vendors, suppliers, and partners, often pose risks to your business. They may be the cause of data breaches, compliance issues, and operational disruptions. But how is that? Well, these third parties have access to your systems and data, and if they are not properly managed, they can inadvertently or maliciously expose you to risks. Luckily, there’s a process that helps you to identify, assess, and mitigate these risks. It’s third-party risk management (TPRM). Below, we explain the TPRM meaning, benefits, and best practices.
Why Is Third-Party Risk Management Important?
So what is TPRM and why does it matter? First things first, it’s a framework for managing the risks associated with external vendors and partners. It views every third party you engage with as a potential entry point for cyber threats. With its help, you can evaluate the security posture of your partners and enforce controls.
The importance of third-party risk management is likewise associated with regulatory compliance. Many industries have stringent regulations that require businesses to manage third-party risks. The failure to do so often results in
- fines
- legal liabilities,
- and reputational damage.
The third-party risk management framework helps you meet these regulatory requirements. It shows you what to monitor and how to do that right.
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What Are the Benefits of TPRM?
Yes, you’ll spend some money on third party risk management services but what you’ll get in return is just incomparable. Let’s break down the major benefits.
1. Enhanced Security Posture
The third-party risk management regulations help you conduct risk assessments and pinpoint weaknesses in your vendors’ practices. For example, if a vendor has inadequate encryption standards, you can require them to upgrade their protocols.
2. Better Compliance Management
As we said above, many industries are subject to regulations like GDPR, HIPAA, and PCI DSS. TPRM ensures that your vendors comply with these. This protects your business legally and builds trust with your clients and stakeholders.
3. Improved Operational Efficiency
TPRM allows you to identify and address operational risks early. That is, if a supplier is experiencing financial instability, TPRM can help you find alternative sources before your supply chain is affected.
4. Cost Savings
Preventing data breaches, compliance fines, and operational disruptions can save you a lot of money. In some cases, the cost of a data breach can run into millions of dollars, not to mention the loss of customer trust and reputational damage.
TPRM Best Practices
There are proven strategies that TPRM professionals usually use to make the framework work as best as possible.
1. Continuous Monitoring
Continuous monitoring ensures you are always aware of all the risks. This often involves the use of automated tools. For example, if a vendor’s security certificate expires, continuous monitoring will alert you immediately.
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2. Risk Segmentation
Segmentation categorizes vendors based on the importance of their services and the sensitivity of the data they handle. For instance, a cloud service provider that processes sensitive customer data should be subject to more rigorous checks than the provider of office supplies.
3. Comprehensive Vendor Assessments
A thorough vendor assessment should include
- on-site visits,
- interviews with key personnel,
- and an evaluation of their security policies.
Each of these can highlight some risks. That is, observing a vendor’s physical security measures can reveal vulnerabilities in their access control systems.
4. Incident Response Plan
Your incident response plan must include protocols for dealing with security incidents involving your partners. It must have predefined steps for communication, investigation, and remediation. Let’s say your vendor experiences a data breach. For this scenario, your incident response plan should outline how to coordinate with them, assess the impact, and implement corrective measures.
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Final Thoughts
All in all, if your business has different vendors and partners, third-party risk management is worth implementing. It will protect you from the threats coming from these partners as well as ensure compliance with regulations. The investment in a robust TPRM program always pays off as it saves you the costs of data breaches and compliance fines.
