Third-party vendors often have access to sensitive data and systems, and any IT security breach or data compromise by (or through) the vendor could result in significant financial, legal, regulatory and reputational damage to a company.
Because of this, companies often prioritize IT vendors in their third-party risk management programs by conducting due diligence assessments, monitoring their security postures, and establishing vendor contractual obligations for security and compliance. This approach has helped companies ensure that their IT vendors were properly vetted and managed to mitigate any potential risks.
However, the scope of risks continues to increase to include non-IT risks that can be just as damaging to a company as IT risks. And the problem is compounded by the persistent use of spreadsheets and other manual methods to assess vendors. Considering that most organizations lack the resources and expertise to address new risk types and handle increasing scale, how can companies keep pace?
This post examines how the need for third-party risk management is changing; presents key justifications for leveraging third-party risk managed services, and shares six steps for outsourcing your TPRM program.
Organizations face several realities in their third-party risk management programs:
The COVID-19 pandemic drove many organizations to accelerate their digital transformation efforts, resulting in the need to expand their vendor ecosystems. This, in turn, drove companies to take a more strategic and proactive approach to managing risks throughout the third-party relationship – from onboarding to offboarding. This more disciplined approach requires greater collaboration between business users, procurement teams and IT security professionals to keep pace with expanding vendor populations and third-party risks.
Government regulations and industry standards have placed increased pressure on companies to ensure that their broader supply chains are secure and resilient. For example, the General Data Protection Regulation (GDPR) in Europe requires companies to ensure that their suppliers and partners comply with strict data privacy regulations. In addition, new environmental, social and governance (ESG) laws have been passed to require organizations to demonstrate transparency in their supply chains.
Cybersecurity threats are becoming more sophisticated, and attackers are targeting third-party vendors as an avenue to access their clients' systems and/or to disrupt supplier operations. Procurement teams need to be aware of these risks and ensure that vendors and suppliers have appropriate security measures in place before, during and after onboarding.
The bottom line is that your organization will be required to assess ever more third parties against an increasingly diverse set of risks.
As the scope of your third-party risk management program grows from assessing the cybersecurity of a few dozen IT vendors to requiring comprehensive and proactive risk analysis and remediation across hundreds (or thousands) of third parties, your organization will likely struggle to keep up.
At first glance, this challenge might appear to force you to decide between ensuring program quality or achieving scale. However, you can have the best of both worlds when you outsource some or all of your third-party risk management functions to a third-party service provider.
With third-party risk managed services, you:
Managed services providers have the expertise and experience to effectively manage third-party risks. They can provide a range of services, including onboarding, third-party risk assessments, due diligence, monitoring, reporting, and ongoing vendor management.
Outsourcing third-party risk management functions can free up internal resources, enabling you to focus on driving value in your core business activities. Managed services providers can supply the technology and automation necessary to streamline processes and reduce the time and effort required to manage your third-party risks.
Managed services providers can provide a more comprehensive and consistent approach to third-party risk management, reducing the risk of gaps and inconsistencies in the TPRM process, and enabling you to integrate with your organization’s broader enterprise risk management efforts.
By using managed services, you can reduce the risks associated with staffing and managing your own TPRM program, while maintaining the flexibility and scalability you need to adapt to changing economic conditions.
Navigating the Vendor Risk Lifecycle: Keys to Success
This complimentary guide details best practices for successfully managing risk throughout the vendor lifecycle. See what we've learned in our 15+ years of experience working with hundreds of customers.
Whether you are initiating a new TPRM program, or looking to optimize and scale your existing program, here are six steps to follow when considering a managed services approach:
First, identify key vested parties in the third-party program from all aspects of the business. Then, gather their requirements, objectives, interactions and minimum expectations from the wider program. Where possible, conduct a maturity review of the existing TPRM program to uncover weaknesses and areas of improvement that can be addressed with the new outsourcing model.
The cost of many TPRM programs will be contingent on the volume of third parties that will be managed. Start by identifying the most critical vendors and suppliers that need to be assessed and managed to support your business operations. Set volume goals for 1-3 years to understand how the program will scale internally and with augmented services over time.
Research and evaluate managed service providers (MSPs) that offer services such as a flexible catalogue to manage in-scope TPRM components. Look for MSPs with experience in your industry, a strong track record, and a service portfolio that meets your specific needs.
Once you have identified an MSP that meets your requirements, work with them to select the right managed services to address your IT infrastructure needs. This may include onboarding, due diligence and remediation services, among others.
Define the SLAs that you require from the provider to ensure that your third-party risk program can scale smoothly and efficiently. SLAs should include response times, uptime guarantees, third-party escalation procedures, and more.
Work with the provider to implement the managed services solution – and continue to manage it with regular performance monitoring and reporting. Use the data collected to refine coordinated playbooks across teams to optimize the solution and ensure that it continues to meet your business needs.
Third-party vendor and supplier risk management programs can help companies identify risks and vulnerabilities in their supply chains and take action to mitigate those risks. By doing so, companies can reduce the risk of disruptions and associated costs, including loss of revenue, legal fees, and reputational damage. A managed services model can help your team quickly implement a mature TPRM program and efficiently reduce third-party risks without the headaches of going it alone.
For more on how Prevalent can help your organization establish a comprehensive third-party risk outsourcing strategy, contact us today for strategy session and demo.