Outsourcing has emerged as a strategic move in the competitive business landscape today. While forward-thinking businesses outsource services to third-party vendors, it brings in significant risks. That’s the reason successful organizations seek vendor due diligence services from experts to screen their outsourcing partners. A report reveals that as much as 38% of businesses encounter third-party data or privacy breaches. On the other hand, 48% of organizations face violations related to compliance while working with third-party companies.
Some of the largest global companies, including Microsoft, Uber, and Toyota have experienced data breaches while working with third parties. Thus, risk management turns out to be crucial. A report reveals that 62% of cases related to system intrusion involved a partner. This points to the vulnerable nature of supply chains. No wonder, successful businesses focus on robust risk management practices to protect themselves from data breaches and maintain their reputation as well as financial stability.
- What is Third-Party Risk Management?
- Recent Changes in Third-Party Risk
- Common Types of Third-Party Risks
- Are Businesses Liable For Third-Party Data Breaches?
- The need for a Third-Party Risk Management Framework
- How Are Organizations Addressing Third-Party Risks?
- Best Principles of Third-Party Risk Management
- What is the Future of Third-Party Risk Management?
What is Third-Party Risk Management?
Third-party risk management (TPRM) is all about assessing and controlling risks related to outsourcing services or data handling to external vendors. It includes identifying risks and assessing and controlling risks related to outsourcing services or data handling to external vendors. This is a methodical approach that helps organizations understand potential risks related to third-party relationships. Have a look at the third-party vendor due diligence checklist for business to make sure that the vendors fulfill all compliance and security standards.
Recent Changes in Third-Party Risk
1. Higher dependence on third-party software
2. Greater network of collaborations
3. Focus on regulatory aspects
Common Types of Third-Party Risks
Have a look at the primary types of risks associated with third-party vendors.
- Financial and reputational risks: Data breaches can lead to financial losses besides inflicting reputational damage to an organization for failing to maintain the privacy of their client’s information.
- Legal and regulatory risk: The non-compliance with laws by the vendor can affect the compliance status of your organization. It can even lead to legal liabilities.
- Operational risks: Disruptions from third parties can have an adverse impact on your operational efficiency and data integrity. It can be the result of a service failure or security breach.
Are Businesses Liable For Third-Party Data Breaches?
The need for a Third-Party Risk Management Framework
How Are Organizations Addressing Third-Party Risks?
Top global organizations are consistently adopting risk management practices rather than one-time measures. The key methods include:
- Use vendor risk assessment questionnaires: These tools help in assessing the data security practices of the vendor. This helps in obtaining a transparent view of their security posture.
- Vendor audits: Similar to Adobe’s Guardrails program and Microsoft’s Supplier Privacy & Assurance Standards, businesses must conduct regular audits. These evaluations help in obtaining deeper insights into vendor compliance and security.
Best Principles of Third-Party Risk Management
Check out the best principles of third-party risk management while outsourcing services to vendors.
- Update your data map: Maintain an up-to-date map of all data that third-party vendors handle. This ensures proper compliance checks and agreements.
- Ongoing due diligence: Consult professional experts for vendor due diligence services to understand the financial status and SOC reports of your vendors.
- Framework and process: Establish a comprehensive framework for assessing third-party risk. This should include a guide detailing the procedures of vendor risk management and compliance standards.
- Industry standards: Make sure to establish your risk management program on industry standards like ISO 27001, SOC 2, and NIST frameworks. These standards provide a foundation for assessing the security control of vendors.
- Onboarding and offboarding: Develop standardized processes for onboarding and offboarding. They must understand your security policies and adhere to the same.
- Security ratings: Monitor the security posture of your vendor using security ratings and be proactive while addressing potential issues.
- Internal audit process: Establish an internal audit process to identify and address issues before external audits take place.
