Common Third-Party Risk Management Challenges and Solutions

A survey by Gartner reveals that 45% of companies have dealt with risks related to third parties in the last two years. As such, this underscores the importance of adequate risk management. 

Simply put,  third-party risk management plays a significant part in effectively protecting your company. Know why? Many companies front on issues such as inadequate risk assessment, lack of visibility, and poor incident response plans. This, in turn, can result in financial implications, reputational harm, and regulatory repercussions. 

But here’s the best thing: There are robust solutions to tackle these challenges head-on. For instance, companies can minimize their exposure to risks by  implementing third-party risk management frameworks and utilizing advanced technologies. 

Having said that, this blog will walk you through common third-party risk management challenges & solutions in detail and provide solutions to address them. Read along to know more!

What is Third Party Risk Management?

Third-Party Risk Management (TPRM) is a type of risk management that mainly concentrates on recognizing and minimizing risks associated with the use of third parties. These third parties are generally known as suppliers, vendors, contractors, service providers, or partners. 

So, how can you manage third party risk?

The primary goal of any third-party risk management program is to take the edge off the following risks:

• Cybersecurity: Put a stop to cyberattacks & data breaches.
• Operational: Set the seal on business continuity with SLAs & backups.
• Legal & Compliance: Keep up regulatory adherence.
• Reputational: Shield against negative public perception.
• Financial: Secure supply chain management.
• Strategic: Accomplish business goals through vendor risk mitigation.

The term “third-party risk management” is often used interchangeably with other common industry terms like supplier risk management, vendor management, supply chain risk management, or vendor risk management. Nonetheless, TRPM is the overarching discipline that includes all kinds of third parties and all types of risks. 

Common Third-Party Risk Management Challenges + Solutions

Implementing an effective TPRM program presents many challenges. In addition, if the issue is not properly investigated, these challenges can expose the company to critical risks. 

Here’s a list of common third-party risk management challenges:

• Mapping the Ecosystem Effectively
• Conducting Vendor Due Diligence & Risk Tiering
• Prioritizing Risk Remediation with Vendors
• Leveraging Vendor Security Questionnaires
• Ensuring Comprehensive Vendor Visibility
• Implementing Continuous Monitoring Controls
• Automating the TPRM Program
• Developing a Robust Vendor Risk Management Policy

Now, let’s get to know each challenge in detail:

1. Mapping the Ecosystem Effectively

Mapping the ecosystem includes recognizing and putting on record all third-party vendors alongside understanding their roles in the company. 

As such, companies might miss significant dependencies if they do not have a clear map of the vendor ecosystem. The prime issue with this is that it can result in gaps in risk management. 

Solutions to overcome the risk of effectively mapping the ecosystem:

• Oversee comprehensive vendor inventories regularly.
• Utilize centralized databases to keep a record of vendor information.
• Engage stakeholders to recognize all third-party relationships.
• Notify the ecosystem map as new vendors are onboarded or off-boarded.

2. Conducting Vendor Due Diligence and Risk Tiering

Vendor due diligence involves examining the risks each vendor poses to the organization. On the other hand, risk tiering classifies vendors in accordance with their level of risk.

However, insufficient due diligence, along with irregular risk tiering, can create the risk set forth by critical vendors. Thus, this increases the chance of data breaches and disruptions in the operation. 

Solutions to overcome the risk of executing vendor due diligence & risk tiering:

• Create standardized owing diligence processes.
• Utilize risk assessment frameworks to examine vendor risks.
• Allocate risk tiers in relation to the importance and sensitivity of vendor services.
• Reconsider vendor risks frequently & modify tiers accordingly.

3. Prioritizing Risk Remediation with Vendors

Prioritizing risk remediation includes spotting & labeling the critical risks that are related to third-party vendors.

Hence, failure to recognize these risks can lead to the use of resources on low-risk issues while leaving high-risk vulnerabilities unaddressed. This could lead to significant security issues.

Methods to mitigate the risk when collaborating with vendors:

• Perform risk evaluations to pinpoint areas of high risk.
• Collaborate with vendors to create strategies for reducing risk.
• Prioritize addressing risks that are both probable and impactful initially.
• Track the efficacy of remediation efforts and modify priorities as required.

4. Leveraging Vendor Security Questionnaires

Vendor security questionnaires are tools used to collect data about a vendor's security practices and controls.

However, depending solely on questionnaires can result in incomplete or imperfect assessments if vendors offer false or inaccurate data.

Lower the risk associated with vendor security questionnaires by:

• Employing the same set of questions for all vendors.
• Validating responses through independent evaluations.
• Including critical security inquiries.
• Pursuing clarification for any unclear or incomplete answers.

5. Ensuring Comprehensive Vendor Visibility

Comprehensive vendor visibility means having a clear idea regarding every third-party vendor alongside their activities in the company.

However, not seeing what vendors are doing can raise the risk of data breaches and breaking the rules.

Here's how to handle the risk of not knowing enough about vendors:

• Use software to watch vendors in real time.
• Make vendors report on what they do often.
• Keep track of vendors with dashboards.
• Check on vendors regularly to make sure they're doing what they should.

6. Implementing Continuous Monitoring Controls

Continuous monitoring involves ongoing surveillance of vendor activities and risks to detect and respond to issues promptly.

If organizations do not conduct continuous monitoring, they may fail to detect emerging threats or compliance issues. As such, this leads to delayed responses and increased risk exposure.

Solutions to execute continuous monitoring controls:

• Use automated tools for real-time monitoring.
• Set up alerts for unusual or suspicious vendor activities.
• Perform regular reviews of monitoring data.
• Adjust monitoring strategies based on evolving risks.

7. Automating the TPRM Program

Automating the TPRM program refers to using technology to streamline and enhance the efficiency of risk management processes.

Manual processes take a lot of time, often have mistakes, and can't handle the large number and complexity of working with many third parties.

Here's a list of how to automate the TRPM Program:

• Use TPRM software to manage third-party relationships.
• Automate routine tasks such as collecting data and assessing risks.
• Apply AI to analyze risk data and spot trends.
• Integrate automation tools with current systems for smooth operations.

8. Developing a Robust Vendor Risk Management Policy

A robust vendor risk management policy outlines the principles, procedures, and responsibilities for handling third-party risks.

As such, companies may lack direction and consistency in managing vendor risks without a proper policy. Hence, this can lead to gaps & inefficiencies in the TPRM program.

Solutions for Developing a Robust Vendor Risk Management Policy:

• Create a detailed policy document.
• Add guidelines for risk assessment, monitoring, and remediation.
• Share the policy with all relevant stakeholders.
• Regularly review and update the policy to match changes in the risk area.

Effectively addressing these challenges is essential for a powerful Third-Party Risk Management program. Thus, it helps companies mitigate risks, ensure compliance, and maintain business continuity.

Streamline Your Third-Party Risk Management with ResilientX

Third-party vendors are essential, but managing their security risks can be a real pain. Manual tasks, scattered information, and limited visibility make it hard to keep your finger on the pulse. ResilientX is here to change that.

ResilientX provides a Unified Exposure Management Platform that includes Attack Surface Management, Web and Network Security Testing, Cloud Security Automation, and Third-Party Risk Management. Our powerful TPRM platform streamlines the entire process, from onboarding new vendors to keeping them monitored. Here's how ResilientX makes your life easier:

• Onboarding Made Simple: Forget grappling with paperwork. Automated workflows guide vendors through the process of gathering crucial risk data. Our advanced analytics go beyond the surface, providing in-depth risk assessments to help you make intelligent choices.
• Save Time: Stop wasting hours tracking documents or reworking endless spreadsheets. ResilientX automates repetitive tasks, freeing up your team to focus on strategic work and high-risk vendors.
• Constant Monitoring: Threats are constantly growing. ResilientX monitors your vendors, looking for any changes that might signal increased risk. This way, you're always informed and can take action before problems explode.
• Clear Picture: Our user-friendly dashboards and reports give you a complete view of your third-party risk outlook. Instantly spot high-risk vendors and prioritize what needs attention the most.

Reflection

It is crucial to manage third party risk. Hence, organizations must address these challenges head-on, facing the constant threats of financial losses, reputational damage, and regulatory penalties. Fortunately, practical solutions are available.

Companies can confidently manage the challenges of third-party risk by taking proactive steps like maintaining comprehensive vendor inventories, implementing standardized due diligence processes, and conducting continuous monitoring. ResilientX further enhances these efforts, streamlining TPRM programs to ensure compliance and maintain business continuity.

Don't let third-party risks hold you back - Request a ResilientX demo today!

Frequently Asked Questions

1. What is third party risk management?

Third-Party Risk Management (TPRM) is a form of risk management that focuses on identifying and reducing risks relating to the use of third parties (sometimes referred to as vendors, suppliers, partners, contractors, or service providers).

2. What is third party risk process flow?

Third-Party Risk management (TPRM) is the process an organization implements to manage risks that are a result of business relationships with third parties that are integrated into their IT environment and infrastructure. These risks can be operational, cybersecurity, regulatory, financial and reputational.

3. What are the 3 levels of risk management? 

At its core, risk management operates on three distinct levels. These levels include strategic, tactical, and operational approaches, each crucial for addressing risks effectively across different time frames and organizational functions.

• Strategic: Long-term planning to align risk management with organizational goals.
• Tactical: Medium-term processes to implement risk management strategies.
• Operational: Day-to-day activities to identify and mitigate risks directly.