Essential Components of an Effective TPRM Policy
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 protects organizations with its Third-Party Risk Management software.
Definition of TPCRM
While an organization relying on third-party vendors for critical business functions should have a Third-Party Risk Management (TPRM) policy, the current digital landscape demands a more evolved strategy.
Third-Party Cyber Risk Management (TPCRM) is the next-generation approach that focuses explicitly on defending the organization from cyber threats originating within its digital supply chain.
A broader scope
TPRM traditionally focused on holistic risks, including financial stability, legal compliance, and operational security of vendors. TPCRM, however, expands this by centering on the cybersecurity risks presented by the vendors themselves and the intricate, interconnected network they form . This shift acknowledges that most critical business disruptions today stem from digital vulnerabilities, such as a vendor's misconfigured server or a data breach in their cloud environment. TPCRM ensures that the cyber resilience of your vendor network is the primary security concern.
Securing the ecosystem
A crucial element of TPCRM is managing systemic risk across the entire interconnected network of third, fourth, and Nth-party vendors—your digital supply chain. It moves beyond simple vendor-by-vendor audits to recognize that a vulnerability in a minor, fourth-party software provider can cascade into a catastrophic breach for your organization. TPCRM aims to secure this vast ecosystem by ensuring security standards are met not just by your direct partners, but by those they rely on as well.
Proactive and continuous
The core differentiator of TPCRM is the move from static, annual assessments to continuous monitoring and proactive threat identification. Traditional TPRM often relied on point-in-time questionnaires, which offer a snapshot of security posture that rapidly becomes outdated. TPCRM, by contrast, leverages real-time data and automated security ratings to detect emerging vulnerabilities, policy violations, and cyber threats instantly, allowing your team to act before an issue can be exploited. This ongoing vigilance is essential for maintaining digital trust.
Why TPCRM is essential for digital trust
In the modern digital economy, a company's success is intrinsically linked to the reliability and security of its entire third-party ecosystem. As organizations deepen their reliance on cloud services and specialized vendors, managing the risks they introduce becomes the single most critical factor in maintaining digital trust.
The foundation of trust
Trust between an organization and its vendors is the foundational asset in any digital partnership. Customers, investors, and regulators expect organizations to protect their data, and that expectation extends to every company in the supply chain. A robust TPCRM framework is non-negotiable for upholding this promise, and a strong third party risk management policy outlines this commitment.
The high cost of neglect
The potential costs of a data breach stemming from a third party are staggering and far-reaching.
Beyond the immediate financial penalties and regulatory fines (e.g., those associated with GDPR or CCPA), a third-party breach can result in severe, long-term damage:
- Financial loss: Fines, litigation costs, and the expense of remediation and customer notification.
- Reputational damage: A major third-party incident can erode customer loyalty, damage brand equity, and result in loss of future business.
- Operational disruption: Breaches can force critical systems offline, leading to significant downtime and lost revenue.
Stakeholder reassurance
A sophisticated and well-documented TPCRM framework serves as critical evidence of due diligence and a commitment to security maturity, thereby reassuring stakeholders, customers, and regulators. When facing scrutiny, an organization with established TPCRM policies—including continuous monitoring and timely remediation—can demonstrate that it has taken all reasonable and necessary steps to safeguard data. This level of transparency and preparedness is key to maintaining digital trust.
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 effectively manages vendor risks with its cyber risk remediation software.
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 third party risk assessment tool.
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.
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.
How TPCRM builds digital trust
TPCRM is not just a defensive security practice; it's a strategic framework that actively contributes to the organization's digital trust posture.
Advanced control alignment
Modern TPCRM dictates that vendors meet advanced security controls that align directly with digital trust objectives:
- Zero trust architecture: Require vendors to adopt zero-trust principles (never trust, always verify) for accessing your critical systems and data.
- AI-driven risk analytics: Leveraging AI-driven risk analytics moves oversight from retrospective reporting to predictive risk modeling, enhancing trust through intelligent defense.
Governance and access
Digital trust is reinforced through strict control over who can access data and how that access is governed:
- Role-based access controls (RBAC): TPCRM necessitates the enforcement of granular, least-privilege role-based access controls for all third-party personnel.
- Ethical AI governance: TPCRM introduces the emerging concept of ethical AI governance in vendor oversight, ensuring third-party AI systems are fair, transparent, and compliant with ethical standards.
Compliance for global trust
A key function of TPCRM is to ensure that the interconnected ecosystem adheres to complex global regulations, a necessity for cross-border digital trust:
- Compliance alignment: TPCRM tightly aligns third-party oversight with major international and domestic compliance frameworks like GDPR, CCPA, NIST, and PCI DSS.
- Cross-border data protection: By mapping vendor controls to these specific regulatory requirements, TPCRM effectively establishes and maintains stringent standards for cross-border data protection.
Steps to implement TPCRM
Implementing a robust TPCRM program is a cyclical process that requires continuous effort and strategic integration into the vendor lifecycle.
1. Identify key vendors
- Discovery and classification: Catalogue every third and Nth party your organization interacts with.
- Risk-based tiering: Implement risk-based tiering (e.g., Critical, High, Medium, Low) based on their access to sensitive data and the potential business impact of compromise.
2. Conduct comprehensive risk assessments
- Beyond checklists: Assessments should include security ratings, penetration test summaries, and external vulnerability scans, tailored to the vendor's risk tier.
- Contractual requirements: Ensure contracts explicitly define and mandate minimum security standards and right-to-audit clauses.
3. Establish risk mitigation measures
- Remediation and acceptance: Develop and track clear, documented, and time-bound remediation plans for identified risks.
- Acceptable risk thresholds: Define acceptable risk thresholds and require formal risk acceptance for residual high-risk issues.
4. Integrate continuous monitoring
- Real-time visibility: Integrate security ratings platforms and automated tools to provide real-time visibility into vendors' security posture.
- Triggered reassessments: Implement triggers that initiate an automatic reassessment if a vendor's security rating drops below a defined threshold or if a significant data leak is detected.
5. Review and evolve regularly
- Policy and Vendor Lifecycle Review: Establish a schedule for the regular review and evolution of your third party risk management policy.
- Periodic Reassessments: Mandate periodic reassessments for vendors, typically tied to the contract renewal cycle, to ensure controls remain effective.
Best practices for TPCRM
A modern TPCRM program requires a strategic, collaborative, and evidence-based approach to security.
Consistent vendor risk reduction
- Risk remediation verification: Implement a process to verify remediation efforts, often using continuous monitoring tools, to confirm that vulnerabilities have been genuinely closed.
- Tiered scrutiny: Focus the most rigorous scrutiny (deep dives, zero-trust adoption) on your Critical and High-tier vendors.
Collaboration and education
- Vendor training and security education: Provide vendors with clear security requirements and best practices and offer educational resources to improve their security maturity.
- Ongoing communication: Establish an open, continuous channel for communication regarding security expectations and threat intelligence.
Framework adoption
- NIST Cyber Security Framework (CSF): Use the NIST CSF as a foundation for structuring your TPCRM policy.
- ISO 27001 or HITRUST: For vendors handling highly sensitive data, requiring certification against standards like ISO 27001 or HITRUST provides a high degree of assurance.
Top tools for TPCRM
Effective TPCRM demands sophisticated platforms that automate continuous monitoring and provide actionable, real-time intelligence across the entire vendor ecosystem.
Features of a modern TPCRM platform
- AI-driven security scoring: Platforms like UpGuard feature AI-driven security rating and scoring that analyze external data, threat intelligence, and assessment responses to generate objective risk scores.
- Automated workflows: Automation manages the entire vendor assessment process, including the distribution of questionnaires, analysis of responses, and tracking of remediation efforts.
- Integrated breach notifications: Tools provide integrated breach and data leak notifications from external threat intelligence feeds for immediate awareness and response.
Value of unified dashboards
- Unified visibility: Centralized dashboards offer a real-time, consolidated view of the organization's overall vendor risk posture, displaying individual vendor scores and the status of remediation tasks.
- Actionable insights: Dashboards focus on leading indicators, allowing security and executive teams to visualize the risk landscape and inform strategic decisions efficiently.
FAQs about TPCRM
What is the difference between TPRM and TPCRM?
TPRM (Third-Party Risk Management) is the broader, traditional discipline covering all risks (operational, financial, legal). TPCRM is a specialized and modern evolution that focuses specifically on the cybersecurity risks, emphasizing continuous monitoring, proactive threat intelligence, and cyber resilience.
Can small businesses benefit from TPCRM?
Yes. Any business that relies on third-party software or cloud services is exposed. Automated TPCRM tools and security ratings simplify vendor oversight, providing the security visibility necessary to maintain an effective cybersecurity program without extensive manual effort.
Is continuous monitoring mandatory in TPCRM?
While not explicitly mandated by all regulators, continuous monitoring is considered fundamental and non-negotiable for an effective TPCRM program. The threat landscape changes daily, making point-in-time assessments insufficient for managing modern cyber risk.
Reinforcing digital trust with a modern TPCRM program
The transition to a modern TPCRM program is a foundational pillar for establishing and preserving Digital Trust. This is a continuous, strategic initiative that ensures your third party risk management policy remains effective against an evolving threat landscape. By adopting advanced measures and continuous oversight, organizations can ensure their security program evolves at the pace of digital transformation, reinforcing Digital Trust across the entire digital supply chain.
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.