What is Third Party Risk Monitoring?

Third party risk monitoring is all about identifying and managing risks with external vendors. This article covers how to secure your vendors, stay compliant and avoid operational disruption.

A robust vendor risk management program is essential as a foundational element for effective third-party risk monitoring.

What is Third Party Risk Monitoring?

TPRM is a critical practice that focuses on identifying and reducing risks with third party entities like vendors, partners and service providers. It’s about minimizing the risks associated with using these external entities.

As organizations are increasingly relying on third party vendors for core business operations, TPRM is essential for business continuity and operational integrity. Effective TPRM is about evaluating and mitigating the risks of outsourcing to third party vendors or service providers. This is key to securing external partnerships.

“Many data breaches, hacks, and attacks, including some of the most prominent ones, are facilitated by external digital relationships in which hackers get access to a company’s network through software or connections from a third party,”

says Thomas H. Davenport, a world-renowned thought leader and author.

Around 61% of companies have had breaches happen from a third party, according to Prevalent. This just goes to confirm that third party risks are far reaching and include financial, environmental, reputational and security risks including third party data breaches. These risks can manifest in many ways such as outages, supply chain disruption and data security issues.

With outsourcing on the rise and data breaches happening more frequently than ever, third party risk management has never been more important. Modern organizations need to know their third party relationships, how they use third party services and what safeguards are in place to manage third party risk including working with low risk third parties.

Developing an effective third-party risk management program involves several foundational steps and processes. These include identifying vendors, assessing risks, establishing reporting capabilities, and involving stakeholders. By following these steps, organizations can ensure that their program adequately addresses the complexities and challenges associated with managing third-party relationships and aligns with a comprehensive vendor risk management framework.

Third party risk monitoring strengthens the organization by fixing gaps, resolving issues and driving business growth. Monitoring the third party network throughout the vendor lifecycle helps organizations know their suppliers, vendors, customers and business partners.

This enables them to make informed decisions about their relationships. At the end of the day TPRM is essential as third party relationships are part of the business and need to be constantly monitored to manage the risks.

Top Tips for Third Party Risk Monitoring

Effective third party risk monitoring involves multiple key elements that help organizations identify, assess and manage risks throughout the vendor lifecycle. Continuous risk assessment, security ratings and questionnaires and automated monitoring tools are key components of good TPRM practices.

Each of these elements plays a role in a secure and compliant third-party ecosystem, forming the foundation of a robust third party cyber risk management strategy. These components are essential to a comprehensive third-party risk management program, which includes identifying vendors, assessing risks, establishing reporting capabilities, and involving stakeholders to address the complexities of managing third-party relationships.

Continuous Risk Assessment

A vendor risk management program is a critical component of a third-party risk management strategy. It’s about ongoing monitoring and regular reassessment of third-party relationships to ensure risk assessments stay current as vendor security postures change over time. By using a risk-based approach, organizations can:

• Categorize and assess each vendor by risk profile
• Ensure high-risk vendors get the attention they need
• Identify and prioritize risks
• Enable targeted mitigation

This will help you identify and prioritize risks in seconds and enable targeted mitigation.

The assessment process should include risk categorization and continuous monitoring of operational risks and financial instability of vendors. Manual methods fall short as they are not agile and can’t keep up with the rapidly changing risks. So using automated security tools and context-aware systems can greatly improve the efficiency and effectiveness of continuous risk assessments. Being proactive helps you stay ahead of the threats and have a robust risk management framework.

Security Ratings and Questionnaires

Security ratings and questionnaires are key tools in the third party risk assessment process. Security ratings provide a data driven, objective and dynamic measure of a vendor’s security posture and give real-time visibility into potential cyber risks.

These ratings help organizations determine if a vendor meets the minimum security standards and therefore simplify the assessment process. If a vendor’s security rating is good then the next step is to engage them with a security questionnaire.

Customisable questionnaires allow organizations to gather more detailed information about a vendor’s security practices and compliance status and tailor the assessment to their needs and preferences.

These questionnaires will identify potential weaknesses that could lead to data breaches or cyber attacks. By using security ratings and questionnaires organizations can monitor changes to a vendor’s security posture and request remediation for high risk issues.

This two pronged approach will give a full view of third party risks and overall security compliance.

Automated Monitoring Tools

Automated monitoring tools make the risk management process more efficient. These tools give continuous visibility into third party relationships and real-time risk mitigation and overall efficiency. By automating the security monitoring processes, organizations can have a single source of truth for all vendors including contracts and risk assessment questionnaires and therefore simplify third party risk management.

Automating the tools with existing systems will allow you to track:

• vendor performance
• cyber threats
• compliance status
• operational metrics

This real-time data will help you identify and address risks quickly and save time and cost. Using artificial intelligence (AI) will further enhance risk monitoring by identifying patterns and predicting risks and therefore a more proactive and efficient approach to third party risk management.

“Data makes companies these days — it’s the data you have and how you use it that provides real value to customers,” says Kyle Abbey, Senior Manager, Cyber Security at Kyriba

Third Party Risk Monitoring Program

Implementing a full vendor risk management program involves several key steps. It starts with:

1. A robust third-party risk management program, which includes identifying vendors, assessing risks, establishing reporting capabilities, and involving stakeholders.
2. Identifying key vendors
3. A detailed policy outlining TPRM procedures and aligned to industry standards like SOC 2 or ISO 27001.

Aligning with internal stakeholders is key to ensure everyone, processes, and technology are aligned to get a full TPRM program.

Initial Vendor Due Diligence

Third party risk management starts with initial vendor due diligence. This is the process of evaluating the risks and level of due diligence required before onboarding a new vendor. Organizations can use self-service portals to gather initial information such as business owners and inherent risk classification, and build an inventory of potential vendors. Full due diligence should include:

• Financial and operational stability of the vendor
• Review of contracts for key clauses
• External intelligence on the vendor and their subcontractors

Initial detailed assessments will help organizations identify and mitigate risks early in the vendor relationship. By reviewing vendor contracts and ensuring they have the necessary security and compliance clauses, organizations can protect themselves from future risks.

This diligence is key to setting the foundation of a secure and compliant third party ecosystem.

Ongoing Vendor Assessments

Ongoing vendor assessments are required to ensure third party vendors are compliant and managing risks long term. Risk assessments should be conducted at least annually for high risk vendors to monitor compliance and emerging risks.

These periodic assessments will identify any issues that need to be remediated with third party vendors and ensure alignment to security and compliance standards.

By assessing regularly organizations can ensure their vendors are adhering to the agreed security and compliance requirements. This ongoing monitoring will keep the third party ecosystem intact and reduce the risk of data breaches and security incidents. Regular reassessments will also allow organizations to get ahead of potential risks and remediate in time.

Incident Response Planning

Incident response planning is a key part of third party risk management. A detailed incident response plan focused on third party breaches will help organizations respond to potential breaches quickly and minimize the impact. This involves identifying key stakeholders, outlining response procedures and conducting regular drills to ensure readiness.

Regularly reviewing and testing the incident response plan will ensure organizations are ready to respond to vendor related incidents. Training programs for employees and third party partners will reinforce the importance of compliance and everyone will know their role in the incident response process.

A clear incident response plan will help organizations respond and contain the impact of data breaches and security incidents.

Third Party Risk Monitoring Best Practices

Following best practices in third party risk monitoring will amplify TPRM efforts. Some to consider:

• Clarity
• Vendor ownership
• Risk intelligence tools
• Segmenting third parties by risk

Following these will help to maintain a strong TPRM program. Regularly reviewing and updating the third-party risk management program, including vendor risk management, will ensure they keep up to date with changing risks and exposures.

Additionally, a comprehensive vendor risk management program should encompass more than just cybersecurity risks. Organizations should consider a broader scope of risks while developing their third-party risk management strategies to create an effective program.

High Risk Vendors

High risk vendors are key to efficient allocation of resources in third party risk management. High risk vendors are those whose failure would impact the organization’s business, so it’s critical to focus monitoring and mitigation on these vendors. By segmenting vendors by risk profile organizations can ensure high risk vendors get the attention and resources they need.

A risk management team should be established to oversee security controls and continuous monitoring of high risk vendors. This team can use labeling to categorize vendors by criticality and focus on the biggest cyber threats first whilst utilizing limited resources. Prioritizing high risk vendors will help organizations manage potential risks and business continuity.

Advanced Analytics

With advanced analytics organizations can get deep insights into vendor risks and performance and make data driven decisions. By analyzing large amounts of data risk intelligence tools can:

• Find patterns, trends and potential risks in third party relationships
• Aggregate data from multiple sources to give a view of vendor risk
• Help organizations prioritize mitigation

Advanced threat detection technologies will enable real-time risk identification so organizations can respond quickly and effectively. By tracking vendor performance and security incidents advanced analytics will help organizations stay ahead of third party risks. Following these will help to a more efficient risk management process.

Communication Channels

Good communication channels are key to a strong third party risk management. Clear communication between the organization and its third party vendors will ensure issues are addressed and fixed. Designated contacts or account managers should manage vendor relationships and communication.

Keeping open lines of communication with vendors will allow organizations to manage correspondence, remediation and questionnaire tracking through one TPRM solution. Working with internal and external auditors will also improve communication and transparency in third party risk management.

Good communication will ensure all stakeholders are aligned and informed and a stronger TPRM program.

Third Party Risk Monitoring Challenges

Despite the importance of third party risk management organizations face many challenges in implementing and maintaining a strong TPRM program. Common challenges are lack of visibility into third party operations, inconsistent monitoring and resource constraints.

Overcoming these challenges is key to TPRM success.

Lack of Visibility

Limited visibility into third party operations will leave organizations exposed to unknown risks. As vendor ecosystems grow it gets harder to maintain visibility and potentially leads to:

• Compliance issues
• Unmanaged risks
• Data security problems
• Breaches

Organizations must map their third party ecosystem to avoid blind spots and manage risk. By using advanced monitoring tools and clear communication channels organizations can get visibility into third party operations and mitigate risk. This proactive approach will help identify and fix issues before they become big problems.

Inconsistent Monitoring

Inconsistent monitoring will undermine third party risk management programs. When controls are applied inconsistently security risks will go unnoticed between assessment cycles and organizations will be exposed to threats. This inconsistency is often due to manual risk management processes that are time consuming and error prone.

To overcome this organizations should:

• Standardize their monitoring processes
• Apply them consistently across all vendors
• Use automated monitoring tools to simplify and make them more reliable and efficient

By having a uniform approach to risk monitoring organizations can better identify and mitigate risk and strengthen their third party ecosystem.

Resource Constraints

Resource constraints is a common challenge for organizations to maintain third party risk monitoring. Vendor risk assessments require a lot of time and resources which many organizations don’t have. This will hinder the ability to do ongoing risk assessments and leave vulnerabilities unaddressed.

To manage resource constraints organizations can:

• Prioritize high risk vendors
• Use automated tools to simplify the risk assessment process
• Simplify third party risk management
• Optimize resource allocation
• Leverage technology

By doing this organizations can maintain risk monitoring with limited resources.

Technology in Third Party Risk Monitoring

Technology will help third party risk monitoring through process automation, artificial intelligence (AI) and flexible solutions. Technology in TPRM will help organizations manage third party risks more efficiently and compliantly and mitigate threats.

Key features include AI driven risk analysis, integration with existing systems and customisable dashboards.

AI Driven Risk Analysis

AI driven risk analysis provides a holistic and predictive approach to third party risk management. By combining quantitative and qualitative methods AI will give you:

• Visibility into potential issues before they become critical
• Analyze trends and patterns in large data sets
• Interpretations and explanations to increase transparency in risk assessments

The predictive capabilities of AI driven risk analysis will allow organizations to:

• Reduce biases in risk assessments
• Make decisions based on diverse and representative data sets
• Reduce inherent risk
• Strengthen the overall security of the third party ecosystem

By using AI, organizations can simplify their risk management process.

Integration with Existing Systems

Integrating risk monitoring tools with existing systems such as Customer Relationship Management (CRM) and Supply Chain Management (SCM) systems will give a seamless user experience and simplify third party risk management.

Leading supplier risk management tools will consolidate vendor information efficiently and maintain a central database of contracts and risk assessment questionnaires. This approach to supply chain risk management will give a complete view of third party risk.

This will allow organizations to simplify their vendor management process and have all relevant information at their fingertips. Automated tools will give a complete view of the third party ecosystem and enable better decision making and risk mitigation.

By integrating risk monitoring tools with existing systems, organizations can strengthen their overall risk management and operational efficiency.

Customisable Dashboards

Customisable dashboards are a key tool for third party risk monitoring, giving access to critical risk data and visualizations. These dashboards will allow organizations to customize their risk monitoring views to their specific needs and track and manage third party risk.

Some key features of customisable dashboards include:

• Access to critical risk data
• Visualizations such as heat maps to show risk levels across different vendors
• Prioritize risk mitigation

By using customisable dashboards organizations can simplify their third party risk management and make better decisions.

Customisable dashboards will allow organizations to focus on the most important data and simplify their decision making and overall risk management. This will allow for better monitoring and management of third party relationships and to identify and address risks sooner.

Customisable dashboards are a key component of a robust and living third party risk management program.

Regulatory Compliance and Third Party Risk Monitoring

Regulatory compliance is a critical part of third party risk management to avoid legal consequences and protect reputation. Following regulatory standards means organizations and their third party vendors are following privacy and security compliance requirements.

TPRM programs need to include ongoing monitoring and periodic re-assessments to ensure ongoing compliance with changing regulatory requirements.

Regulatory Requirements

Understanding regulatory requirements is key to compliance in third party risk management. These requirements will vary depending on the type of organization, its location and the location of its customers. Key regulatory frameworks include:

• The Interagency Guidance on Third Party Relationships
• State privacy laws
• The Foreign Corrupt Practices Act (FCPA)
• The Sarbanes-Oxley Act

These regulations require third party risk management and organizations to follow privacy and security compliance standards.

Organizations need to stay up to date with current regulatory requirements and include them in their TPRM programs. This means:

• Review and update policies and procedures as the regulatory environment changes
• Understand and follow these requirements
• Mitigate compliance risk
• Protect their reputation in their industry.

Compliance

Compliance means:

• Ongoing monitoring and re-assessment of third party vendors to identify new risks and confirm compliance with regulatory requirements
• Regular audits and risk assessments of third party relationships to keep organizations aligned with industry standards
• Ongoing monitoring of vendor compliance so any deviations are addressed quickly and reduce the risk of regulatory breaches.

Communication is key to compliance as updates or changes to regulations and TPRM programs expectations need to be communicated internally and to third party vendors. Having a plan in place for non compliance whether internal or with third party vendors is also critical to mitigate risk. By doing this organizations can stay compliant and reduce the risk of legal and reputational damage.

Reporting to Stakeholders

Reporting to stakeholders is a critical part of third party risk management to ensure senior management and the board are informed of TPRM programs progress. Regular reporting will increase transparency and accountability so stakeholders can make informed decisions based on up to date information. Reports should include metrics on compliance status, critical vendor inventory and risk areas.

Having stakeholders aware of TPRM activities and outcomes will build trust and support the overall risk management strategy. By documenting and reporting critical TPRM data organizations can prove they are committed to a secure and compliant third party ecosystem.

Regular reporting to senior management and the board will ensure all decision makers are aligned and aware of the organization’s risk posture.

Third Party Risk Monitoring Programs

Successful third party risk monitoring programs can be a useful example for other organizations looking to enhance their TPRM program. For example, one organization implemented their TPRM program by introducing a zero trust architecture and doing a full vendor assessment. This resulted in a reduction in compliance incidents and improved vendor response. By keeping the communication open and setting clear expectations they were able to create a more secure and compliant third party ecosystem.

Another organization used AI driven analytics to do ongoing assessments and categorize vendors by risk tier based on regular reviews. This proactive approach allowed them to monitor vendor risk in real time and address issues before they became problems. These brief case studies examples show the importance of having a robust TPRM program and the benefits of using advanced technology and best practice.

TPRM FAQs

Why is continuous risk assessment important in TPRM?

Continuous risk assessment is important in TPRM because it keeps risk assessments up to date as vendor security postures change over time so organizations can stay ahead of the threat. It’s key to a proactive approach to risk management.

How do security ratings and questionnaires help with third party risk assessment?

Security ratings provide an objective measure of a vendor’s security and questionnaires gather detailed information so you can get a full picture of third party risk. This will help you assess third party vendor security.

What role does technology play in third party risk monitoring?

Technology plays a big part in third party risk monitoring by automating, using AI for risk analysis, integrating with existing systems and customisable dashboards for efficient risk management. It helps a lot.

How do organizations comply with regulatory requirements in TPRM?

Organizations can comply with regulatory requirements in TPRM by monitoring third party vendors, doing regular audits, staying up to date with regulatory requirements and having open communication and response plans for non compliance. All of which are key to regulatory compliance.

Wrapping up

In summary, third party risk monitoring is critical to the security and compliance of an organization’s third party ecosystem. By understanding TPRM and implementing continuous risk assessment, security ratings and automated monitoring tools organizations can manage third party risk. Best practice includes prioritizing high risk vendors, using advanced analytics and open communication channels.

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