This post was co-authored with Alastair Parr, SVP of Products & Services.
Third-party risk management (TPRM) has come a long way in recent years, from an ad hoc spreadsheet-based questionnaire process focused on simply vetting IT vendors, to automated and continuous assessment and monitoring of diverse vendors and suppliers managed by multiple teams.
As we approach 2024, several key trends are shaping the way organizations approach this increasingly crucial aspect of their risk management programs. In this post, we'll delve into the top ten predictions for third-party risk management in 2024 and how they will evolve the practice of TPRM in the future.
2023 has been a record year for third-party security incidents, with breaches such as MOVEit dominating the headlines. The resulting regulatory pressure to improve the governance over third-party outsourcing arrangements, such as that from the Securities and Exchange Commission (SEC) and several European entities, is driving the evolution of TPRM from a project that aims to manage risks to a program that addresses risks across a third-party lifecycle.
In other words, TPRM is no longer an experiment; it's an expectation. This maturation has solidified TPRM’s position as an essential element in organizational risk management decision-making. Therefore, despite economic uncertainty, inflation, and labor shortages, investment in TPRM will remain consistent into 2024. Board-level and executive-level engagement in TPRM will persist due to continued third-party security incidents and regulatory pressure.
While challenges in finding skilled TPRM practitioners may continue, efficiency and effectiveness in TPRM programs will improve thanks to generative AI, machine learning, data analysis, enhanced automation, and program outsourcing.
Managing risks is not enough, you must manage the lifecycle of a vendor relationship to understand the context of the risks your organization is exposed to. Otherwise, TPRM devolves into a check-the-box exercise. This will require TPRM program owners to expand the scope of their efforts to include all parties that interact with third-party vendors and suppliers.
Why a lifecycle-based approach? The third-party lifecycle encompasses all activities related to a vendor from cradle to grave – including vendor onboarding, continuous monitoring, compliance, risk management, and offboarding – and each stage of this lifecycle presents its own unique risks. Different personas and departments drive this evolution, each with their own specific needs and interests.
In 2024, procurement is expected to play a more prominent role in driving third-party lifecycle management. Legal departments will automate clause detection and comparative analysis of contract terms to service levels. Risk management will continue to be a core player, while operations will use data sets from various sources to enhance operational resilience and ensure quality.
Audits will persist, as compliance and regulatory mandates become more complex. The trend of third-party lifecycle management involving various business areas will continue.
As more teams become involved in managing the third-party lifecycle, organizations will seek to unify an array of IT and non-IT risks into centralized vendor profiles. This will effectively eliminate islands of third-party risk data stranded throughout the enterprise and transform that data into a comprehensive risk model that is constantly updated with internal and external insights. Various teams will then tap into this authoritative source to improve operational decision-making throughout the vendor/supplier relationship.
In 2024, we expect to see diverse assessment content – covering areas like cyber posture, business intelligence, financial records, geopolitical events, certifications, and nth-party information – to improve decision-making. This expanded scope reflects the diverse interests of various departments, particularly procurement and legal. Vendors are expected to provide more comprehensive certification information on an ongoing basis.
The emergence of geopolitical and environmental insights, based on geography, will be a significant focus for operational resilience. While it might be challenging to track all localized sites, monitoring solutions will play a crucial role in helping organizations understand potential risks associated with vendor locations.
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Building on the previous prediction, leveraging a unified risk model that is continuously updated will enable organizations to perform more advanced and predictive analytics to better allocate resources to effectively scale programs.
Further, advanced predictive analysis in TPRM will become more persona driven. Reporting will cater to the needs of key personas, such as the CISO, business leaders, and the board. These reports will focus on risks, external threats, compliance, and coverage. The maturation of TPRM programs will lead to an increase in maturity scores, with the tools and capabilities available enabling organizations to engage with vendors more effectively.
A notable development will be the inclusion of behavioral insights in reporting. These insights will provide valuable information on vendor interactions and response times. Advanced analytics models will help predict and interpret user behavior, enhancing the overall quality of TPRM programs.
As more organizations accept non-assessment forms of due diligence, such as SOC 2 reports, the need for automated analysis of that documentation will drive more training and usage of targeted natural language processing (NLP) models.
Therefore, NLP, a technology with several years of development, is poised to transform TPRM in 2024. Until now, it has been used for basic keyword searches and sentiment analysis. However, the field is maturing, and NLP is becoming a powerful tool for extracting, translating, and structuring data from vendor documents. Practitioners will be able to use this data to populate assessments and automate actions, making TPRM more efficient and effective.
NLP will play a crucial role in extracting valuable data from several types of documents, including contracts, reports, and policies. It will identify control failures, translate documents in different languages, and even assess the sentiment of infosec policies, leading to more informed decision-making.
One of the key benefits of NLP in TPRM is its ability to bring structure to unstructured documents. Data extracted from these documents can be normalized and turned into actionable insights and automations, making it more useful and practical.
Generative AI is set to become an integral part of TPRM, but it's important to approach this technology thoughtfully. As organizations grow more comfortable with generative AI, they'll incorporate it into their TPRM programs.
As the quality and consistency of data governance improves in generative AI models, organizations will overcome their hesitation to use the technology for specific controlled use cases. For example, generative AI will assist in automating processes, providing trend advisories, and supporting document mapping and assessment population. These capabilities will help organizations overcome continued shortages in skilled labor and escalating costs.
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Regulations are always evolving, and in 2024, we can expect to see more intelligent and proactive approaches to handling them. TPRM professionals will demand simplification in applying new regulations and automated retroactive checks against existing data to ensure compliance.
To simplify third-party risk management compliance in 2024, organizations will seek to automate data gathering by using a single targeted assessment with built-in compliance mappings to common regulatory requirements.
With the increasing complexity of TPRM programs, integration and synchronicity among different systems will be paramount. This will streamline workflows and ensure that data is effectively shared between different areas of the business. Expect to see a growing demand for integrations between adjacent systems in 2024, such as GRC platforms, procurement systems, and reporting tools. This will specifically focus on identifying centralized records of vendor “truth” which will cascade throughout the lifecycle and enrich decision-making between teams (see Prediction #3).
Continuous third-party risk monitoring will take center stage in 2024, driven by the need for real-time insights into vendor violations and issues. The daily collection of data from various sources will provide a wealth of information, leading to more advanced analysis of TPRM data, and better, higher-quality decision-making. Board and executive-level demand for more proactive responses to localized events and zero-day vulnerabilities will largely drive these efforts.
The days of assessing every single vendor in a massive ecosystem are over. TPRM will become more pragmatic, focusing on critical vendors and key concentration risks. Fourth-party assessments will be targeted and efficient, with a focus on privacy policies and risk management. This trend is driven by a recognition that not all third parties – and not all third-party risks – are created equal. And teams are too strapped to manage everything equally. Expect more profiling and tiering of vendors to drive more pragmatic vendor management.
Understanding the context of vendor relationships is crucial. Data collection during the procurement cycle will be instrumental in providing context for TPRM. This will lead to more informed decision-making, right-sizing vendor populations, and persona-based dashboards and reports. It will also require teams to collaborate on risk review and analysis. In 2024 automation within the third-party lifecycle will support the collection and structuring of vendor profiling, as definitive workflows will be established based on the context this provides.
As we look ahead to 2024, third-party risk management is set to undergo significant evolution. The integration of NLP and generative AI, along with smarter regulation management, continuous capabilities, and a focus on context, will enhance the effectiveness and efficiency of TPRM programs. By embracing these innovations and trends, organizations can stay ahead in managing third-party risks effectively and adapt to the evolving landscape of business partnerships and regulatory requirements.
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