Third-party risk management (TPRM) is reviewing and mitigating risks associated with outsourcing business operations to third-party vendors or service providers. Risks are varied but include cybersecurity risks like data breaches or reputational risks that affect business continuity.
If your organization wants to create a TPRM program or upgrade your current risk management strategy, focusing on customization can be critical in setting your organization apart. Adapting a Vendor Risk Management program to fit your company's maturity, culture, strategic priorities, and threats successfully addresses risks specific to your organization.
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Standard TPRM Frameworks
There are a variety of commonly used TPRM frameworks that operate as a starting point for organizations. These are not one-size-fits-all but provide a general approach that fits most organizations looking to implement a TPRM program. These policies help organizations enforce best practices, from due diligence processes to ongoing monitoring.
Shared Assessments Frameworks
Shared Assessments is a global organization that aims to improve third-party risk assurance by developing best practices, education, and products. They provide two generalized frameworks to help organizations build out their TPRM program, including:
- Shared Assessments TPRM Framework: A comprehensive set of TPRM best practices to help organizations establish, monitor, and optimize their TPRM program. Includes fundamentals to start up a TPRM program and processes that help ongoing management.
- Shared Assessments Standard Information Gathering Questionnaire (SIG): A benchmark questionnaire pre-mapped to other standards, including HIPAA for healthcare organizations and ISO, NIST, GDPR, and PCI DSS. This industry standard allows organizations to build, customize, analyze, and store vendor assessments for managing third-party risk.
NIST Third-Party Risk Management Frameworks
The National Institute of Standards and Technology (NIST) is a federal agency that develops and promotes measurement standards, technology, and guidelines across various industries, such as cybersecurity, manufacturing, and information technology. They provide two frameworks for TPRM:
- NIST Supply Chain Risk Management Framework (NIST 800-161): Specifically focused on helping federal entities manage supply chain risks, but also useful for private sector organizations with complex supply chains and advanced supply chain risk management (SCRM) needs
- NIST Risk Management Framework (RMF) 800-37: A generalized risk management framework for all companies in all industry sectors to implement third-party risk management and information security management. Specifically applicable to risk mitigation strategies for onboarding new third-party suppliers.
NIST Cybersecurity Framework
NIST also provides a cybersecurity framework (NIST CSF) that outlines best practices and standards for building a cybersecurity program. The NIST CSF is heavily used for measuring a potential vendor’s cyber risk profile during the assessment process. This is useful if an organization must adhere to data privacy regulations or has compliance concerns.
ISO TPRM Frameworks
The International Organization for Standardization (ISO) develops and publishes international industry standards, including quality management, environmental sustainability, information security, and data protection.
- ISO 27001, 27002, and 27018: Provides requirements for establishing, implementing, maintaining, and continuously improving an information security management system. While much broader than TPRM, these frameworks include information on managing supplier risk regarding a more extensive security program.
- ISO 27036: International standard that provides guidelines for information security in supplier and vendor relationships. Covers aspects like data protection, confidentiality, and information security governance in the context of third-party relationships.
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Key Considerations for Customizing Your TPRM Program
Before developing a customized third-party risk assessment framework, review a few areas of consideration specific to your organization. The following areas will help tailor your TPRM framework to your organization and its needs.
Mission Statement
Review the company’s mission and vision statements. These provide valuable insight into what an organization strives to accomplish and how it plans to get there. A company’s vision and mission statement can help refine its risk management processes to allow leadership to craft strategic plans around it. For example, if your organization is a digital storefront and your mission statement prioritizes convenience and user experience, a strong TPRM program with a mature privacy program would be valuable.
SWOT Analysis
Create an inventory of your company’s strengths, weaknesses, opportunities, and threats (SWOT) to identify other key areas to focus on. A SWOT analysis can highlight areas of improvement, like fraud, incident response, noncompliance issues, etc. These areas can then be addressed in a TPRM framework.
Assess Security Maturity
Assess your company’s level of information security. Your CISO and information security domain leaders will be an excellent resource to review a history of incidents and areas of concern. Use these findings to supplement your eventual TPRM framework. For example, if your organization works with many third-party vendors who have access to sensitive information, taking elements from a cybersecurity supply chain risk management framework like NIST 800-161 would be beneficial.
Understand Culture
While cybersecurity culture may not play a huge role in your eventual TPRM framework, it will help inform you on how to ensure senior management is on board with TPRM decisions. Culture can include how decisions are made, how the company interacts with information security protocols, and how structured or flexible an organization is. TPRM frameworks differ in their methodologies; some are more flexible, and others are more structured. Consider this as you customize your own TPRM framework for your organization.
Steps to Build a Customized TPRM Framework:
Follow the steps below to create a customized TPRM framework for your organization.
1. Engage with Stakeholders
The first step in building a customized TPRM framework is to engage with stakeholders. Key departments like IT, Legal, Operations, and Compliance must be involved to ensure a cross-functional approach that accounts for diverse risks and requirements. Stakeholder engagement also incorporates diverse perspectives and expertise.
A collaborative process identifies blind spots, prioritizes organization objectives, and designs a more comprehensive TPRM framework well-suited to an organization’s specific needs. Maintain this stakeholder engagement throughout the TPRM lifecycle for continuous improvement and adaptability.
2. Conduct a Risk Assessment
The next step in building a customized TPRM framework is to conduct a risk assessment. This involves identifying and analyzing potential risks and threats with third-party vendors, suppliers, or partners your organization relies upon. A comprehensive risk assessment provides a foundation for prioritizing risks and developing mitigation strategies.
Some standard risk assessment tools include a SWOT analysis, FAIR, or adapting elements of the NIST Cybersecurity framework. For cybersecurity specifically, consider utilizing cybersecurity risk assessment tools like security posture ratings and vendor questionnaires. These insights allow organizations to tailor their TPRM framework more effectively and manage their company's most significant risks.
3. Prioritize Risks and Align Objectives
Next, prioritize organizational risks and objectives. Once the risk assessment is complete, compile a detailed analysis of findings that outline the most severe risks and vulnerabilities that could impact your organization’s business operations and reputation. You can categorize these risks into different levels based on factors like probability of occurrence, impact severity, and effectiveness of current controls.
Once the risks are categorized, align them to your company’s overall objectives: regulatory compliance, data protection, cyber attack protection, customer satisfaction, etc. For example, if your primary objective is regulatory compliance, you may prioritize risks that could result in legal sanctions or fines. If customer satisfaction is your end goal, then risks related to data breaches and service interruptions may take precedence.
Prioritization and alignment create a targeted list of risks that require immediate action and sharpen the focus on your TPRM framework.
4. Create Custom Parameters
Tailor your TPRM framework even further by creating custom parameters. This allows a unique assessment incorporating key performance indicators (KPIs), metrics, and security controls specific to your organization’s business model and industry. Parameters can include various areas, from cybersecurity and data privacy to operational performance and regulatory requirements.
Tailored metrics ensure that the third-party risks your TPRM tracks align with your organizational goals and risk level. Customized parameters enable more accurate risk assessment and targeted mitigation strategies, enhancing the overall effectiveness of your TPRM.
5. Build the Framework
Once the preparation work is done, the next step is to build the customized TPRM framework. This is where all the prior planning, assessment, and prioritization come together in a structured format. Building the TPRM framework includes:
- Identify the Risk Categories: List the various risk categories specific to your organization identified during the risk assessment phase (cybersecurity risks, compliance risks, financial risks, etc.)
- Define KPIs: Select any Key Performance Indicators (KPIs) identified that can serve as metrics to measure your TPRM framework's effectiveness and third-party vendors' performance.
- Establish Controls: Based on prioritized risks, define controls that need to be in place. This can include preventive (authentication processes, access limitations), detective (monitoring systems, automated KPI tracking), or corrective controls (legal actions, noncompliance penalties).
- Set up Reporting Mechanisms: Determine how and when reports will be generated to evaluate third-party performance and risk status. Choose the formats and channels that will be most effective for your organization. Hiring a managed service is also an option for running this program.
- Create the Template: Combine the above elements into a structured and organized template. This template will serve as the backbone for your TPRM framework.
This framework will guide your organization’s TPRM process, providing a consistent approach for evaluating and managing third-party risks. This stage in the process can also benefit from utilizing best practices from established TPRM frameworks. Tailor your TPRM approach to your organization by combining best practices while implementing controls identified during the risk assessment process. Remember to be flexible and allow for feedback from stakeholders during implementation.
6. Test and Refine
Finally, allow time for testing and refining your new customized TPRM framework. Roll it out on a small scale or utilize a pilot program to test its effectiveness and usability. Real-world testing will allow organizations to identify gaps, inconsistencies, or inefficiencies in the framework. This also builds towards cyber maturity and minimizing supply chain risk in your organization.
Based on the results and feedback, adjust and refine the TPRM template to fine-tune it for broader implementation. An iterative process ensures that your new customized TPRM framework can be continually adjusted with your organization’s evolving needs and risks.
Framework Maintenance and Updates
After implementing your TPRM framework, it is essential to regularly maintain and update your personalized framework to ensure its continued effectiveness and relevance. The business landscape constantly changes with new regulations, technological advancements, and emerging threats. Therefore, your TPRM template should be periodically reviewed and updated to accommodate these variables. It is also essential to involve stakeholders during this process to gain insights into areas needing modification.
Remember to evaluate the impact of bringing in new third-party relationships or ending current ones. Every new vendor has risks that need to be added to the existing TPRM framework, and offboarding vendors may need specific risks removed. Ongoing monitoring and performance evaluations can also help remind you when to update the framework. It's important to remember that maintaining and updating the framework is an ongoing process that helps improve it over time, making it a dependable tool for managing risks and making decisions.
Upgrade your Third-Party Risk Management Framework with UpGuard
If your organization wants to upgrade your vendor management program, consider streamlining your risk assessment workflows with Vendor Risk.
Vendor Risk manages your vendor lifecycle and ecosystem with automated and instant workflows—all in one convenient and organized dashboard. Vendor Risk features include:
- Security Questionnaires: Automate security questionnaires with workflows to get deeper insights into your vendors’ security
- Security Ratings: Instantly understand your vendors' level of risk with our data-driven, objective, and dynamic security ratings
- Risk Assessments: Gather evidence, assess risks, and request remediation all in one place
- Vendor Risk Monitoring: Utilize continuous monitoring to see your vendors in real-time and view details to understand what risks are impacting a vendor’s security posture
- Reporting and Insights: UpGuard’s Reports Library makes it easier and faster for you to access tailor-made reports for different stakeholders
- Managed Third-Party Risks: Our expert analysts can control your third-party risk management program and allocate your security resources
