Any organization that relies on third-party vendors for critical business functions should develop and maintain an effective third-party risk management (TPRM) policy.
A TPRM policy is the first document an organization should create when establishing its TPRM program. TPRM policies allow organizations to document internal roles and responsibilities, develop regulatory practices, and appropriately communicate guidelines to navigate third-party risks throughout the vendor lifecycle.
Furthermore, a standardized TPRM policy is vital because it provides an organization with a roadmap to maintain healthy cybersecurity hygiene, even as it enters third-party relationships with new vendors and expands its supply chain.
One report estimates that 98% of organizations worldwide have integrations with at least one third-party service provider that has experienced a breach in the last two years. While this alarming statistic will frighten most organizations, your organization can find peace of mind by developing a TPRM policy to guide and manage its overall TPRM program.
Discover how UpGuard empowers organizations to take control of their TPRM programs>
How to Develop Your Organization’s Third-Party Risk Management Program Policy
The most effective TPRM policies include standardized practices that regulate every stage in the vendor lifecycle, from onboarding to offboarding. Designing your organization’s comprehensive TPRM policy may seem daunting, primarily if you already work with many third-party vendors.
If you’re having trouble getting started, consult stakeholders throughout your organization. Communicating with relevant stakeholders is the best way to ensure your organization’s TPRM policy prioritizes the needs and challenges of all departments.
You should also consider industry-specific challenges, such as compliance regulations (NIST, GDPR, CCPA, HIPAA, etc.) and specific risk categories (cybersecurity risk, operational risk, compliance risk, reputational risk, etc.) that may affect your organization and its TPRM program.
While all effective TPRM policies are composed of many essential elements, the best policies will have guidelines in place to standardize how an organization:
- Organizes internal roles and responsibilities
- Establishes risk tolerance and minimum security requirements
- Identifies organizational risks and third-party vulnerabilities
- Onboards third-party vendors and manages vendor risks
- Determines vendor criticality
- Conducts vendor due diligence
- Maintains supply chain visibility and continuous monitoring
- Manages vendor contracts and navigates terminations
Read more for additional information on how to implement a TPRM policy >
1. Organizational Structure: Roles and Responsibilities
Organizing internal TPRM roles and responsibilities is one of the most critical functions of an effective TPRM policy. Most TPRM policies will outline the roles and responsibilities of the board of directors, senior management, vendor owners, independent reviewers, legal, and other groups associated with the organization’s TPRM program.
When drafting your TPRM policy, carefully outline all responsibilities your team is accountable for while consulting stakeholders from each group.
Outlining all your organization's TPRM duties in one place will allow individuals to reference the policy in the future when they are unsure of who is responsible for a specific task. This clarity will speed up internal communications, improve workflows, and allow your organization to quickly onboard new team members as your internal TPRM team expands or changes.
Learn about the top Third-Party Risk Management solutions on the market >
2. Establishing Risk Tolerance and Minimum Security Requirements
All effective TPRM policies establish an organization's overall risk tolerance threshold and document the minimum security requirements a vendor must possess to be eligible to enter a third-party partnership with the organization.
Setting these guidelines early will allow your organization to easily compare vendors and make informed decisions based on the value and risk exposure individual vendors present to the organization.
Overall, there are three levels of risk tolerance:
- Low-risk tolerance: Organizations with a low-risk threshold are entirely opposed to most third-party risks and often place security and predictability ahead of growth and vendor opportunities.
- Moderate-risk tolerance: Organizations with a moderate-risk threshold are not afraid of strategic risks but value strong data protection and information security.
- High or critical-risk tolerance: Organizations with a high-risk tolerance aggressively seek opportunities and are willing to deal with higher uncertainty regarding their third-party partnerships.
Your organization’s TPRM policy should outline the level of risk your organization is comfortable with. When describing your organization’s risk tolerance, your TPRM policy should also identify the specific metrics, such as a minimum security rating, risk scores, and industry compliance standards, the organization will use to determine if it is wise to partner with a particular vendor.
Learn how UpGuard helps organizations evaluate vendors using dynamic security ratings >
3. Identifying Organizational Risks and Vulnerabilities
Even organizations that maintain a low-risk threshold will experience some level of risk with every third-party partnership. Therefore, after documenting your organization’s risk appetite, your TPRM policy should demonstrate how it will identify the risks individual vendors present to the organization.
When documenting how your organization identifies third-party risks, ask yourself what tools it uses to screen vendors and evaluate their security posture. Your organization’s TPRM policy should outline these tools and processes so that future personnel follow the same protocol when assessing the impact of every new third-party opportunity.
The best TPRM programs utilize several tools to ensure an organization identifies all risks and vulnerabilities. The best TPRM tool belts include:
- Security ratings,
- Risk assessments,
- Security questionnaires,
- Penetration testing, and
- Vulnerability scanners
While drafting your organization’s TPRM policy, you should also point out areas of your organization's TPRM program that could use improvement. It's common for organizations to face resource-related struggles when trying to implement various tools into their TPRM program, but this doesn’t mean your organization should expose itself to unnecessary risks.
UpGuard Vendor Risk allows organizations to evaluate vendor risks and vulnerabilities quickly by utilizing a powerful arsenal of TPRM tools, including automation, custom risk assessments, up-to-date security ratings, security questionnaires, and more.
4. Standardizing Processes for Third-Party Onboarding & Vendor Risk Management
Once your organization outlines how it will evaluate potential vendors and identify third-party risks, it should start using its TPRM policy to standardize vendor onboarding and risk management processes.
Start by listing all the procedures your organization needs to complete before permitting a vendor access to any internal systems. Outlining these onboarding procedures will ensure personnel are always aware of critical requirements.
Next, determine where your organization will keep track of all the vendors within its supply chain and note this in the TPRM policy. You can also document procedures your organization uses to update each third-party status as they move through the vendor lifecycle.
Once again, while drafting your organization’s TPRM policy, you should identify areas for improvement. If your organization currently uses a manual system to keep watch over its supply chain switching to an automated vendor management tool could improve your organization’s efficiency and effectiveness.
Utilizing a vendor management tool with an all-in-one dashboard, like UpGuard Vendor Risk, is the best way to keep track of multiple vendors and efficiently manage onboarding workflows.
In addition to regulating the maintenance of your organization’s third-party vendor inventory, your TPRM policy should also note how your organization will maintain supplier risk profiles, track the level of data shared with each vendor, and install security controls to limit the level of information or sensitive data its exposes to a vendor.
Learn how UpGuard Vendor Risk helps organizations with vendor tiering and vendor risk management>
5. Determining Vendor Criticality
All effective TPRM policies will also outline the procedures and criteria used to determine vendor criticality and assign standard TPRM risk ratings.
Most organizations will organize vendors into one of two categories:
- Critical: The products or services the vendor provides directly affect daily business operations, or a sudden loss of the vendor would negatively impact customers or cause a significant service disruption.
- Non-Critical: The products or services the vendor provides do not directly affect daily business operations, and a sudden loss of the vendor would not negatively impact customers or cause a significant service disruption.
Your organization’s TPRM policy should also outline the characteristics of each standard TPRM risk rating:
- High risk: Most organizations consider partnerships high risk if the nature of the relationship or the vendor’s profile presents significant risks and requires frequent oversight. Or, as required by the nature of its business, the vendor has direct access to sensitive data or customer information.
- Moderate risk: Most organizations consider partnerships moderate risk if the nature of the partnership or the vendor’s profile presents some risk and periodic oversight is required. The vendor has limited access to confidential information.
- Low risk: Most organizations consider partnerships low risk if the nature of the partnership or the vendor’s profile presents little-to-no risk and minimal oversight is required. The vendor has minimal or no access to personal data.
Finally, your TPRM policy should outline the tools your organization uses to determine inherent risk and monitor ongoing risk. When drafting this section of the TPRM policy, ask yourself if your organization utilizes an objective rating tool, vendor management software, or some other TPRM tool to calculate vendor risk.
6. Conducting Vendor Due Diligence
In addition to establishing vendor criticality and risk ratings, an effective TPRM policy will also communicate the measure an organization takes to complete risk-based due diligence procedures.
To make your TPRM policy the most effective, you should communicate when personnel must complete due diligence activities. Make sure to document what needs to be completed before onboarding, periodically throughout a vendor relationship, and before renewing critical contracts.
Your organization’s TPRM policy should also include information on the scope of its due diligence practices. Most organizations' due diligence processes involve assessing a vendor’s attack surface, cyber resilience, reputation, compliance with applicable regulations, and ability to serve the organization’s needs during the procurement process or throughout the vendor lifecycle.
While drafting your TPRM policy in response to due diligence, you can also ask yourself these important questions to assess the effectiveness of your organization’s due diligence plan:
- Does our policy ensure vendors have adequate incident response or disaster recovery plans in place?
- Does our policy ensure vendors have remediation and mitigation plans in place for identified risks?
- Does our policy ensure vendor executive boards prioritize the importance of TPRM?
Learn more about UpGuard’s powerful TPRM tools>
7. Supply Chain Visibility and Ongoing Monitoring
A comprehensive TPRM policy will document how the organization’s TPRM program maintains supply chain visibility and list all the ongoing monitoring activities the program uses to manage third-party vendors.
When designing your organization’s TPRM policy, note any TPRM tools it uses to maintain supply chain visibility. Of course, visibility can pose a significant challenge for rapidly growing organizations, so this is another place to improve your organization's current TPRM procedures.
Learn how UpGuard’s all-in-one dashboard enhances supply chain visibility>
While creating a list of all the monitoring activities your organization conducts, consider these examples:
- Monitoring for compliance with industry laws and regulatory requirements,
- Administering penetration testing programs to appraise a party’s risk resilience,
- Conducting periodic risk assessments to appraise a third party’s security posture,
- Reviewing a third party’s security rating and rating history,
- Reviewing performance reports related to the third party’s contractual obligations, etc.
8. Vendor Contracts and Termination
Unfortunately, not every third-party partnership an organization enters is as successful as the organization hopes. An organization’s TPRM policy should outline details surrounding vendor contracts and termination protocols to protect the organization in the event a partnership becomes harmful.
To protect your organization, you should include explicit terms related to contract execution, management, and termination in your organization’s TPRM policy.
- Contract execution: It is standard for TPRM policies to dictate that third-party contracts do not become effective until after personnel complete due diligence. This timing protects the organization if unforeseen concerns arise during due diligence.
- Contract management: TPRM policies typically outline who will manage renewal and termination dates. This section of a TPRM policy will also likely outline that each party knows its obligations under the contract.
- Contract termination: Most TPRM policies will outline the procedures an organization should follow when it determines it is best to terminate a contract.
In addition to outlining the procedures the organization will follow when terminating a contract, your TPRM policy should include a separate section outlining your organization's rights to deem a contract eligible for termination.
Best Tools of an Effective Third-Party Risk Management Plan
Organizations rely on various TPRM tools to manage cyber risks and carry out all risk management strategies included in their TPRM policy. The most effective TPRM programs utilize everything from vendor dashboards to remediation workflows to manage vendor relationships and the risk they present
- Intuitive vendor dashboards: The best vendor dashboards are intuitive, user-friendly, and allow organizations to monitor their entire supply chain in one central location. Effective dashboards utilize automation to provide security updates and will send real-time notifications to organizations when a change in security requires their attention.
- Comprehensive vendor risk assessments: Risk assessments allow organizations to evaluate a vendor’s security posture at any time. The best risk assessments are customizable and flexible to meet the needs of any organization.
- Automated security questionnaires: Organizations can gain deep insight into a vendor’s security structure by utilizing automated security questionnaires.
- Streamlined remediation workflows: The best remediation workflows utilize automation to eliminate the pain of chasing organizations.
- Instant security ratings: Organizations can use instant security ratings to monitor their entire supply chain around the clock. The best TPRM platforms will also allow organizations to receive real-time notifications when a vendor’s security rating drastically changes.
How Can UpGuard Help Your Organization with TPRM?
UpGuard Vendor Risk allows organizations to identify, assess, and mitigate risks all in one intuitive platform. You can optimize your organization's TPRM program and follow your third-party risk management framework using UpGuard Vendor Risk to manage your entire supply chain.
Outsourcing to any third-party vendor presents risks to your organization. UpGuard Vendor Risk can help your organization with risk mitigation, prevent data breaches, and improve the efficiency of your overall TPRM team.
