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Third Party Risk Management, often referred to as TPRM, is heavily utilized by many different companies to manage the risks that their third-party vendors may pose. When managing third party vendors, risk management has a lifecycle that companies follow.
Key Stages of the TPRM Lifecycle
The following stages are key parts of the TPRM lifecycle, and they are important to follow in order to safely onboard and offboard vendors.
Sourcing and Selection
At the beginning of vendor risk management is the selection of vendors. Generally, more than one team from a company plays a role in selecting vendors, and each has its own priorities.
Onboarding
During this stage of the TPRM life cycle, information about the vendor is uploaded, and a profile is created. Some of the onboarding processes are automated, such as questionnaires, and the onboarding process itself can be fairly lengthy. Payment terms, information, and security standards should also be decided upon during this stage.
Scoring Risk
Scoring the risk that a third-party vendor may pose is one of the most important parts of the TPRM process. Different vendors are going to pose different risks, as well as varying levels of risk, so not every vendor requires the same amount of scrutiny.
Inherent risk needs to be determined. This is the risk level of the vendor before they implement the controls required by your company. This helps you and your company determine what kind of due diligence will be required in the future and determine the baseline of the risk. Determining inherent risk can help build tiering, make categorization decisions, and accelerate risk assessments.
Assessing Vendors
Different vendors pose different levels of risks; it varies depending on how critical they are to the flow and function of your business. Having third-party risk management software can help automate and speed up some of the vendor assessments, but management processes can be challenging for companies with smaller teams who have few resources at hand.
One way to speed up data collection is through vendor exchanges, where information about a vendor that has already been shared is submitted within an industry exchange and shared along a wider scale.
Monitoring
It’s very important to monitor your third party vendors once you have entered into a contract with them, and periodic assessments can help your company understand how their information and data programs are governed. However, while your company may be diligently monitoring your third parties, other parties can pose a risk to your company.
Vendors have their own third parties, which are referred to as fourth and nth parties. Sometimes vendors rely on these other companies to run aspects of their businesses and fulfill contracts, which isn’t anything different than what your company is doing. Unfortunately, operational, security and other risks that these parties pose or may be experiencing can affect your company. When assessing risk, identify any fourth parties of your vendor that are critical to that vendor’s success and monitor how that fourth party might pose risks to your company.
Managing Ongoing Performance
Risk management doesn’t end once a vendor has been onboarded. Vendors can pose risks at any point in your relationship with them, and it’s important to scrutinize them closely.
Regularly assess their performance to make sure that they are holding up to their service level agreements (SLA) and meeting any other requirements they are obligated to through their contract. By regularly assessing third party vendors, if there are any issues, they can be caught early.
Termination and Offboarding
Termination of a contract with a third party vendor can occur because of many different reasons; the why isn’t always important. Once the relationship with a vendor ends, a company can still experience risks. These vendors who have been offboarded still have sensitive information, and they must either return the information or destroy it. Any access they may have to the internal systems of the company needs to be cut.
When offboarding a vendor, don’t assume that the company’s data has been deleted. Instead, reach out to the third party vendor and make sure they have deleted the data. The best way to connect with them is through email or writing; when it is written down in a physical form, it will provide proof later on if there are any incidents.
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