For many businesses, global third-party vendors have become an important source of strategic advantage and business value. Yet outsourcing is not without its risks. As reliance on third-parties continues to grow, so does the number of headline stories of regulatory action and reputational damage that arise from third-party breaches or failure.
Those driving organizations need to reconsider how they approach, identify and manage third-party risk.
Financial services organizations in or operating in the United States must have a strong focus on third-party risk management due to the increasing regulatory focus and complexity of relationships with foreign and domestic third-parties. Outside of the United States, countries like Australia have a strong focus on third and fourth-party vendor management in financial services via APRA's Prudential Standards, too.
Third-party providers can provide great strategic advantages to your organization and the best businesses are utilizing vendors heavily, by focusing on what they do best and outsourcing the rest. But these same third-party relationships present cyber security risk when not managed well.
As organizations grow in size and complexity, the ability to manage third-party relationships becomes ever more critical to success. Organizations that struggle to expand their third-party ecosystem, for fear of the risks it can create, will be disrupted by organizations who can confidently identify and manage risk.
Whether or not it's a regulatory requirement, every organization should mitigate digital risks by instituting a third-party, and even fourth-party, management plan in their security risk management processes.
Learn more about regulatory risk in cybersecurity >
What is third-party risk management (TPRM)?
Third-party risk management (TPRM) is the process of analyzing and controlling risks associated with outsourcing to third-party vendors or service providers.
This could include:
- Unnecessary access to your intellectual property, customer information or other sensitive data.
- Operational risks
- Finance risks
- Compliance risks
- Reputation risks
- Data protection risks
- Cyberattack risks
Modern TPRM programs primarily focus on security risk mitigation since this category has te greatest impact on all other risk categories.
Focusing on mitigating vendor security risks means mitigation workflows must begin at the due diligence stage of a vendor relationship. Due diligence is the investigative process by which a third-party is reviewed to determine if it's suitable for a given task. Due diligence is an ongoing process including review, monitoring and management communication over the entire vendor lifecycle.
The goal of any third-party risk management program is to reduce the likelihood of data breaches, costly operational failures, vendor bankruptcy and to meet regulatory requirements. Managing third-party risk is nothing new, but the level of risk that is being taken on is.
Organizations are now facing risks such as the threat of high-profile business failure, illegal third-party actions being attributed to the organization, or regulatory enforcement for actions taken by third parties.
Why do I need a third-party risk management framework?
It is critical organizations have a robust, mature third-party risk management program that encompasses all aspects of risk and all stages of the lifecycle that a third-party relationship can transition through from initial due diligence to business continuity.
It is not enough to have a myopic focus on operational risk factors like performance, quality standards, delivery times, KPIs and SLA measurement. Increasingly, reputational and financial risks are more important. Such as labour practices, information risk management, financial health.
Legal and regulatory requirements should also be understood. Such as compliance with bribery regulations, awareness of global industry standards as they apply to third-parties, as well as environmental and health and safety compliance.
Senior management must understand the high risk their organization is exposed to from cyber security attacks and data breaches from their organization and their third and fourth-party service providers. Regardless of your organization's risk profile, establishing a third-party risk management process is a critical part of internal audit and reducing risk exposure.
The risk assessment process should be part of your organization's internal controls and include supply chain and other third-party risk assessments.
Third parties include your vendors, suppliers, business channels, marketing partners, payroll providers, and anything else that could cause financial, regulatory compliance, or reputational damage if breached.
How do I select a third-party risk management framework?
Your choice of a third-party risk management framework should be based on your organization's regulatory requirements, acceptable level of risk, use of third-parties, business processes, joint ventures, compliance requirements and overall enterprise risk management strategy.
Organizations are now leveraging third-parties directly in their supply chain, as well as auxiliary services like sales, distribution and support. The increasing use of technology, like cloud and cloud-based applications, is further accelerating the trend toward outsourcing and increasing associated risks.
Further, the value of the tasks being executed by third-parties is increasing, increasing the impact of disruption or failure of third-party vendors.
Third-party risk is a feature on board agendas with CEO/board-level responsibility in many organizations especially those operating in regulated environments. Visits to third-party locations are becoming more common to gain assurance over third-party management.
As businesses become more decentralized, there is increasing need for consistent third-party governance frameworks. Best-in-class organizations are leveraging third-parties extensively while effectively managing the risks associated.
A TPRM framework should consist of the following components:
- A vendor risk assessment program
- Compliance gap detection (especially for critical regulations like PCI-DSS)
- Third-party vulnerability detection
- Security questionnaire automation
- Remediation program.
- Report generation feature for keeping stakeholders informed of TPRM efforts
Because cybersecurity frameworks are expanding into the third-party risk mitigation space, it’s likely that your current cybersecurity framework already has a foundation in place for a future TPRM program.
TPRM controls are shared between multiple frameworks. To prevent doubling up, it’s important to be aware of the vendor risk controls that are present in the cybersecurity frameworks that are relevant to you.
For example, here’s a list of compliance frameworks that include third-party risk controls for the parent risk category Supply Chain Risk Management (SCRM):
- NIST CSF: ID.SC-1
- ISO 27002: 15.1.1
- NIST 800-53: PS-7 & SA-4
- NIST 800-171: 252.204-7008, 252.204-7012, NFO PS-7
A significant security control overlap exists between the framework’s NIST 800-53, ISO 27001, and NIST CSF.
Is my business liable for third-party breaches?
If you work in the financial services industry, the short answer is yes.
In the United States, the Office of the Comptroller of the Currency (OCC) wrote in its risk management guidance:
A bank’s use of third parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws.
Along with the OCC, the Federal Reserve System (FRS) and the Federal Deposit Insurance Corporation (FDIC) have statutory authority to supervise third-party service providers in contractual agreements with regulated financial institutions.
In the Supervision of Technology Service Providers booklet from FFIEC, it is highlighted that the use of third-party providers "does not diminish the responsibility of the...board of directors and management to ensure that activities are conducted in a safe and sound manner and in compliance with applicable laws and regulations, just as if the institutions were to perform the activities in-house."
If you're in Australia and regulated by APRA, read our post on APRA CPS 234: Information Security Prudential Standard.
Is My Organization liable for third-party breaches if we are not in financial services?
Even if you're outside the United States and not a financial services provider, if you have an office or customers in the United States, you could still be liable for third-party providers.
A non-US headquartered multinational company, with interests in electricity generation and transmission as well as rail transport, was fined US$ 772 million in December 2014 for engaging in conduct in violation of the Foreign Corrupt Practices Act (FCPA). This has mainly resulted from the inappropriate conduct of third parties and ineffective due diligence and corporate controls over such third parties.
The Healthcare industry is particularly vulnerable to supply chain attacks and third-party breaches
Learn how UpGuard improves security postures in healthcare >
Remember, even if your business does not have financial or regulatory responsibility for third-party breaches or failures, they can still do massive reputational damage that leads to financial loss and more importantly, loss of customer trust and data.
How Does TPRM fit Into your existing cybersecurity framework?
The most common frustration amongst businesses considering a TPRM implementation is not knowing how the program fits with an existing cybersecurity framework.
The good news is you don’t need to replace your existing cyber framework with an entirely new one.
Think of a Third-Party Risk Management framework as a roadmap to maturing your existing cybersecurity framework into one that includes a TPRM component. It’s an extension of your current cyber framework, with adjustments accommodating for different risk appetites and regulatory requirements in each vendor relationship.
This symbiotic relationship will make greater sense in the 7-step guide below, where the process of integrating a TPRM framework against a generic cyber framework is outlined.
But to ensure you get the most value from an explanation of the integration process, it’s important to first cover some essential prerequisite knowledge.
What’s the difference between a third-party risk framework and a third-party risk management program?
Most TPRM implementation frustrations stem from a poor understanding of the difference between a Third-Party Risk framework and a Third-Party Risk Management program.
These terms are not variations of the same definition; each refers to an entirely different component of third-party vendor security.
A Third-Party Risk Framework refers to a cybersecurity framework that includes third-party security controls. A Third-Party Risk Management Framework, on the other hand, is a series of processes based on the TPRM lifecycle outlined above.
Because of this, a TPRM program will not naturally follow the implementation of a Third-Party risk framework. To understand how these terms relate to one another, think of the TPRM framework as the skeletal structure of your future TPRM program; it indicates all of the foundational security controls you need to build out a TPRM program.
7 Step Guide: Integrating a TPRM with your existing cybersecurity framework
The following 7-step process will help you map your existing risk controls to a TPRM program. This general process can be applied to most cybersecurity frameworks.
Remember, a TPRM program does not replace your current cyber framework. You are augmenting both initiatives to broaden your security risk management capabilities.
Because UpGuard can detect third-party risks across the entire attack surface, the platform can be used to simplify the entire TPRM implementation process. To illustrate this, a relevant feature of the UpGuard platform is introduced in each step below.
Step 1: Review your enterprise risk management framework
Your ERM framework should be updated to align with the increasing emphasis on third-party risk controls across regulations and compliance standards.
Updating your ERM framework should trigger an update of all your risk registers across each department. Every business unit across most industries utilizes some degree of third-party service, so every business unit should have a risk register.
If you come across any risk registers that have recently been updated, check to make sure their risk data is based on the most updated list of third-party vendors and products in use.
After updating a risk register, always confirm its alignment with the risk appetite outlined in your ERM framework
How UpGuard can help
If you are using the UpGuard platform, you can:
- Import all vendors and start tracking their security posture performance.
- Add an explanation of how to discover the third-party risks associated with each vendor.
- Tier vendors based on risk criticality, regulatory requirements, or assessment requirements.
- Organize your vendor relationship network with custom labels.
Step 2: Update or create a corporate risk appetite statement
A well-defined risk appetite should govern your understanding of managing and scoring risks across each risk register at an organizational level. Your risk appetite should be defined at an organizational level and feed into every business unit.
This will set an objective risk threshold that every business register is measured against, allowing critical third-party risks at a department level to be easily identified.
A strong risk appetite statement will address all third-party risks threatening the achievement of business goals and include plans for identifying and addressing those risks.
To design a risk appetite statement, you need to:
- Clearly define a growth roadmap - Understand the organization’s overall strategic goals and objectives.
- Develop a risk appetite scale - Define a scale of the level of risk your organization is willing to absorb to achieve its strategic goals and objectives.
Learn how to develop a risk appetite scale - Involve stakeholders - Senior leadership should be consulted and involved with this process, particularly the design of your risk appetite scale.
- Use common language when developing the risk appetite statement - By defining your risk appetite clearly and concisely, internal and external stakeholders will understand your statement and make risk-intelligent decisions. This means the risk appetite statement should be expressed in a common language that is used throughout the organization. This can be aligned to the language in policies, procedures, and any manuals.
If you don’t have a corporate risk appetite statement, you can refer to USAID’s 2018 statement as a template for your own design.
The cybersecurity component of your risk appetite statement should be an honest evaluation of your current security efforts and outline an achievable pathway for elevating the security posture of your entire ecosystem, including your third-party vendor network.
- Define your risk tolerances - Your risk tolerance is the level of acceptance around a particular set of risk-based objectives. It’s a measurement of exactly how much of a loss an organization is willing to experience for a given cyber event. Your calculated risk tolerance should result from careful consideration of all the potential risks your assets could face and your overarching risk appetite.
- Develop prioritization tools - These tools should help your business units make better risk-based decisions during their day-to-day activities and projects. This is where the risk consequence and impact tables can come into use.
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Learn the difference between residual and inherent risks.
Using UpGuard to monitor your inherent and residual risks
UpGuard’s security score projection feature predicts the impact of certain remediation actions on your overall security posture.
You can use this feature to help you decide which remediation processes should be prioritized to maintain alignment with your enterprise risk appetite.
Use this feature to also help you compose a TPRM component in your risk appetite statement. Perform a scan to detect all of the third-party security risks in your vendor network, and design a remediation program that elevates your third-party security posture to its desired score as quickly as possible.
Step 3: Draft TPRM security policies
Create TPRM policies to align the cybersecurity objectives of your entire organization against processes outlined in the TPRM lifecycle.
Besides an overarching TPRM that you include in your risk appetite statement, TPRM policies should be drafted for each business unit in the context of each unit’s unique risk profile.
When writing each TPRM policy, it’s important to consider your internal third-party risk requirements (as outlined in your ERM framework) and the compliance requirements of any relevant regulatory standards.
Relevant regulatory standards include those that pertain to your industry and the industries of each of your vendors.
Here’s a list of popular compliance standards to support your TPRM policy writing efforts:
- Cybersecurity Maturity Model Certification (CMMC)
- European Banking Authority (EBA)
- Cloud Security Alliance (CSA)
- Financial Conduct Authority (FCA)
- General Data Protection Regulation (GDPR)
- Federal Financial Institutions Examination Council (FFIEC)
- ISO 27001
- ISO 27002
- ISO 27018
- ISO 27036-2
- ISO 27701
- Health Insurance Portability and Accountability Act of 1996 (HIPAA)
- North American Electric Reliability Corporation Critical Infrastructure Protection (NERC CIP)
- NIST 800-53
- NIST 800-161
- NIST Cybersecurity Framework (CSF)
- Stop Hacks and Improve Electronic Data Security (SHIELD) Act
- SOC 2
- OCC Bulletins
- PCI DSS
Step 4: Select a TPRM framework
Select a TPRM framework that best unifies your TPRM policies, calculated risk appetites, and ERM framework.
Your selected framework should be capable of:
- Highlighting the risks within your appetite and those falling outside of the threshold.
- Identifying all of the security controls your third-party vendors are expected to implement
Step 5: Design third-party vendor onboarding contracts and due diligence processes
At this point, you’ll have enough personalized third-party risk data available to create security contracts for new third-party vendors and establish your due diligence processes.
This step will combine the outcomes of stages two and three of the TPRM lifecycle.
For an outline of the vendor security contract creation process, refer to stage three of the TPRM lifecycle.
Vendor due filigence
Vendor due diligence processes include all of the questionnaires and assessments required to accurately describe each vendor’s security posture.
The terms Security Questionnaire and Security Assessment are often used interchangeably because they both refer to the same due diligence processes.
Your choice of questionnaire depends on your unique compliance and cyber threat mitigation requirements outlined in your ERM framework.
Learn more about Security Questionnaires.
If you require a more targeted third-party risk evaluation, you can create your own assessments by combining relevant questions from any of the above questionnaires. However, without a risk management platform like UpGuard, this effort will likely depend on spreadsheets and manual processes, which isn’t a scalable Vendor Risk Management foundation you should build upon.
How UpGuard Can Help You with the Vendor Due Diligence Process
With UpGuard, you can create your own custom risk assessments by either modifying an existing design or building one from a blank canvas.
This feature allows you to align each risk assessment to the unique risk thresholds of each third-party vendor.
Step 6: Define a method for evaluating vendor security prior to onboarding
Though your final VRM lifecycle design depends on the third-party risk management goals specified by your stakeholders, it’s highly recommended to include a Vendor Due Diligence workflow within the onboarding phase.
Vendor Due Diligence ensures prospective vendors are sufficiently scrutinized for dangerous third-party risks that could lead to regulatory fines or data breaches shortly after onboarding - a common cybersecurity oversight likely responsible for most data breach events.
Commonly referred to as “Evidence Gathering,” due diligence for potential vendors involves collecting cybersecurity performance evidence from multiple sources to create a preliminary evaluation of their security posture.
These sources could include:
- Cybersecurity Certifications
- Completed security questionnaire
- Trust and security pages
- Non-invasive external attack surface scans.
Mapping to these different data sources without a streamline strategy could quickly result in convoluted workflows impacting the efficiency of your final risk assessment framework. To prevent this, aim to compress your data collection network, ideally by consolidating all pathways into a single security performance data exchange platform, such as Trust Exchange by UpGuard.
Watch this video for an overview of Trust Exchange.
Sign up for Trust Exchange for free >
Once collected, security performance data for potential vendors should be fed through a mechanism for determining the severity of different types of vendor risks. While these calculations could be done manually by constructing a vendor risk matrix, for maximum efficiency, potential vendor security risks should be evaluated with security rating technology - an implementation that will concurrently support the processes in stage four of this framework.
Establishing a sequence between Evidence-Gathering and potential risk evaluation will also establish a means of determining which onboarded vendors will require full-risk assessments throughout their relationship lifecycle.
For an overview of the top features of an ideal risk assessment solution, read this post comparing the top third-party risk assessment software options.
Step 7: List all applicable regulatory standards you need to adhere to
Alignment with regulatory standards is non-negotiable, so your risk assessment framework should foundationally map to the regulations relevant to your business operations.
If you’re a service provider outsourcing digital processes, consider the impact your security risks could have on the regulatory compliance requirements of your business partners. You may need to account for these regulations in your compliance program.
You may need to adjust your security controls to minimize disruption to the compliance efforts of your business partners.
Below is a list of popular regulations, including a third-party risk management component. Each item is accompanied by a link to an UpGuard post outlining how to meet the regulation’s TPRM requirements.
- PCI DSS - Meeting the third-party risk requirements of PCI DSS
- Digital Operations Resilience Act (DORA) - Meeting the third-party risk requirements of DORA.
- California Consumer Privacy Act (CCPA) - Meeting the third-party risk requirements of the CCPA
- The NY SHIELD Act - Meeting the third-party risk requirements of the NY SHIELD Act
- The Health Insurance Portability and Accountability Act (HIPPA) - Meeting the third-party risk requirements of the HIPAA healthcare regulation.
- NIST 800-53 - Meeting the third-party risk requirements of NIST 800-53
Step 8: Establish a vendor risk calculation methodology
A vendor risk calculation methodology determines a third-party vendor's overall level of risk based on their completed risk assessment. There are two main approaches to third-party risk calculation: qualitative and quantitative.
Qualitative approach to vendor risk calculation
Qualitative vendor risk analysis uses a subjective framework for quickly representing vendor risk severity. This model could either represent third-party risk severity on a number scale (the higher the number, the higher the potential risk associated with the vendor) or graphically in a vendor risk matrix.
Here’s an example of a vendor risk matrix where vendors are distributed across a risk severity spectrum ranging from green (low risk) to red (high risk). Risk matrices could also indicate the business’s risk appetite and risk threshold, serving as an aid for securing the vendor onboarding workflow and a helpful resource for cybersecurity reports and dashboards.
The qualitative method has the benefit of representing third-party risk exposure in a manner that’s generally easily understood by all parties, even those with limited cybersecurity knowledge - the usual context of stakeholder meetings. However, using this technique alone could produce a subjective representation of an organization’s vendor risk profile.
Quantitative approach to vendor risk calculation
Quantitative vendor risk analysis involves mathematical processes to produce an objective numerical calculation of a vendor’s overall risk exposure (or security posture). The final result of a quantitative analysis is usually represented as a security rating, ranging from 0 to a maximum value of 950.
A vendor's security rating is calculated by quantifying the total value of their security risks and subtracting that from a maximum rating of 950.
Which vendor risk analysis method should you choose?
To create a vendor risk assessment framework supporting a risk assessment program benefiting all involved parties, the simplicity and visual appeal of the qualitative method should be combined with the objectivity of the quantitative approach. This combination produces the most impactful Vendor Risk Management results on the UpGuard platform, as attested by many independent positive reviews on Gartner.
As an example of how these different risk representation styles could complement each other, here’s a third-party risk overview representing a business’s vendor distribution across a three-tiered criticality matrix, where risk severity is determined by security ratings.
Step 9: Choose an appropriate vendor risk assessment framework
Onboarded vendors flagged as "critical" through the risk calculation methodology in the previous step (which, at the very least, always includes vendors processing sensitive internal data) will need to undergo regular full risk assessments. A full risk assessment is one involving secuirty questionnaires in addition to automated scanning methods.
Vendor security questionnaires come in different themes, each mapping to a specific cybersecurity framework or regulation. Your primary choice of questionnaire depends on the security framework your organization has chosen to align with, such as NIST CSF version 2, SOC 2, or ISO 27001.
Assessing critical vendors against the standards of your cybersecurity framework will indicate areas of misalignment that could become attack vectors facilitating a data breach.
Besides tracking each vendor’s impact on your organization’s cyber framework, you should also assess for compliance gaps against any regulations impacted by a vendor relationship. This may require your vendor risk assessment framework to be adjusted for each vendor’s unique assessment requirements, meaning each vendor may require a unique set of questionnaires for their risk assessment.
See the example below of a vendor risk assessment consisting of two different security questionnaire.
Learn about UpGuard's Vendor Risk Assessment Product Features >
Any regulation questionnaires required for each vendor should be determined in step 7 of this process.
To give you an idea of the different questionnaire types that could comprise a vendor risk assessment framework, here’s a list of popular themes, all available on the UpGuard platform.
- SIG Lite Questionnaire
- ISO 27001 Questionnaire
- CyberRisk Questionnaire
- Higher Education Community Vendor Assessment Tool (HECVAT) Questionnaire
- Health Insurance Portability and Accountability Act (HIPAA) Questionnaire
- Short Form Questionnaire
- SolarWinds Questionnaire
- NIST Cybersecurity Framework Questionnaire
- Apache Log4J - Critical Vulnerability Questionnaire
- Kaseya Questionnaire
- Security and Privacy Program Questionnaire
- Web Application Security Questionnaire
- PCI DSS Questionnaire
- Modern Slavery Questionnaire
- Pandemic Questionnaire
- Infrastructure Security Questionnaire
- Essential Eight Questionnaire
- Physical and Data Centre Security Questionnaire
- California Consumer Privacy Act (CCPA) Questionnaire
- COBIT 5 Security Standard Questionnaire
- ISA 62443-2-1:2009 Security Standard Questionnaire
- ISA 62443-3-3:2013 Security Standard Questionnaire
- GDPR Security Standard Questionnaire
- CIS Controls 7.1 Security Standard Questionnaire
- NIST SP 800-53 Rev. 4 Security Standard Questionnaire
- Post Breach Questionnaire
Step 10: Establish a notification workflow
Delayed vendor risk assessment is one of the leading causes of inefficient Vendor Risk Management programs. Beyond being notified when a risk assessment has been completed, notification triggers should be implemented in remediation workflows through project management integrations like Jira and Zapier. Keeping security teams aware of every new remediation task will ensure discovered risk exposures get addressed faster, ultimately resulting in faster risk assessment completion times.
To further capitalize on the workflow efficiency improvements of a notification strategy, consider also implementing a means of streamlining vendor collaboration during questionnaire completions, a solution that isn't dependent on emails.
For ideas about implementing a more streamlined vendor collaboration workflow into your risk assessment framework, watch this video to learn how UpGuard solves this problem.
What are the best Practices for a third-party risk management framework?
Both the National Institute of Standards and Technology (NIST) and International Organization for Standardization (ISO) have popular risk management frameworks that can be used together in the assessment process of any third-party risk management program.
In general, best practices for any risk management framework are to:
- Take inventory of all third-party vendors your organization has a relationship with
- Catalog cybersecurity risks that the counterparties can expose your organization to
- Assess and segment vendors by potential risks and mitigate risks that are above your organization's risk appetite
- Develop a rule-based system to assess future vendors and set a minimum acceptable hurdle for the quality of any future third-parties in real-time by reviewing data security and independent reviews
- Establish an owner of Vendor Risk Management and all other third-party risk management practices
- Define three lines of defense including leadership, vendor management and internal audit
- The first line of defense – functions that own and manage risk
- The second line of defense – functions that oversee or specialize in risk management and compliance
- The third line of defense – functions that provide independent assurance, above all internal audit
- Establish contingency plans for when a third-party is deemed below quality or a data breach occurs
Establishing a third-party risk management framework means the financial and reputational damage to your organization will be minimized if a third-party data breach does occur. Data breaches can have massive impacts on your customers, employees and the position of your organization in the market.
Learn how ISO 31000 supports risk management >
Properly managing cyber security reduces the impact and cost of risk management without impacting the overall productivity and ability to onboard third-parties to an organization.
Third-party risk management frameworks provide your organization with shared standards for decision-making, minimizing the hassle and time it takes to manage third-party vendor risk. Ultimately saving your organization money and more importantly, its reputation and relationship with its customers.
How UpGuard can help
The UpGuard platform is a complete Vendor Risk Management solution comprising all of the essential components of a TPRM program, including:
- Continuous attack surface management
- Risk assessment and security questionnaire automation
- Remediation planner
- Cybersecurity report generation
- A suite if due diligence features for secure vendor onboarding.
How to convince executives to prioritize third-party risk management
Security professionals understand the importance of third-party risk management but remember executives don’t live in the same bubble. While security professionals are inundated with stories about the latest data breach or security vulnerability, these events are not typically included in the news briefs CEOs are reading.
To combat this gap, consider a few strategies for convincing executives that investing in TPRM is beneficial and important to your organization.
Speak their language
Frame third-party risk management as a risk-reduction strategy rather than another security program. Reducing risk is an executive priority your C-Suite may resonate with, especially if that risk reduction protects organizational compliance, reputation, and revenue.
Consider using data to help bolster the need for proper TPRM software. Data-driven insights showcase how significant the impact of third-party breaches can be. Take it a step further and isolate data relevant to your industry—such as the cost of data breaches for healthcare industries or non-compliance fines for financial institutions.
Align with strategic goals
Business executives often handle strategy and long-term company forecasts. Aligning the need for third-party risk management programs with upcoming strategic goals helps your executives understand why TPRM investment is warranted. For example, if your company is expanding partnerships or adopting artificial intelligence models, highlight the increased third-party exposure that comes with those decisions.
Regulatory compliance is another common concern for stakeholders, and luckily, there is a very clear connection between TPRM and regulatory compliance. Standard and industry-specific regulations, like GDPR, HIPPA, or DORA, and security frameworks, like NIST or CIS Controls, all include elements of Vendor Risk Management. Draw a clear connection between TPRM investment and regulatory compliance, and showcase how one helps the other.
Leverage real-world examples
Finally, utilize existing case studies of similar companies that invested in TPRM solutions and the results they achieved. Tailor these examples to your industry, the specific TPRM product you’re interested in, or your company's strategic goals.
For example, Morningstar, a US-based global financial services firm, utilized UpGuard Vendor Risk to optimize its vendor security assessment process, moving from an unstructured manual process to an automated TPRM solution. This investment resulted in increased vendor assessments by over 1,300% and 75% of time saved assessing vendors.
St John Western Australia, a non-profit organization providing essential healthcare services, struggled with safeguarding patient data and protecting health information with its existing manual processes. After implementing UpGuard Vendor Risk, St John saved around 2,000 hours of assessment time—equivalent to two personnel per year.
Tips to earn budget approvals for third-party risk management tools
Once executives understand the priority of third-party risk management, the next step is to demonstrate how these tools improve your organization and a plan for implementation. Consider the following tips to help bolster your case for a larger budget to accommodate third-party risk management tools.
Calculate the ROI of TPRM investments
One of the best ways to strengthen your case for TPRM investments is to showcase the return on investment (ROI). Consider utilizing IBM’s annual Cost of a Data Breach Report, which in 2024 revealed that the global average cost of a data breach was USD 4.88M—a 10% increase over the previous year and the highest total ever. Calculate your organization's ROI by comparing the cost of a third-party data breach against the cost of TPRM investment.
Include other metrics, like incident response costs, downtime, regulatory fines, or third-party relationships, that are positively impacted through TPRM adoption.
Demonstrate efficiency gains
Third-party risk management solutions typically include efficiency features, saving security and compliance teams time and resources. Automated security questionnaires and third-party risk assessments, streamlined procurement and onboarding workflows, and compliance requirement checklists are a few examples.
As you present your business case for a larger TPRM budget, emphasize how TPRM prioritization helps your team increase efficiency and streamline manual work. These examples illustrate how third-party risk management can enhance overall business operations while increasing your organization’s security posture at the same time.
Pilot programs and create phased rollouts
TPRM integration is daunting, so come prepared with pilot programs or a phased roll-out plan. Propose an initial low-cost deployment to prove value before requesting a larger budget, demonstrating the value of third-party risk management with a small group of vendors to create quick wins.
Ideally, focus on vendors with the highest risk exposure to your organization. With one or two high-risk vendors, provide an overview of the entire risk management process, demonstrating how vendor risk assessments, risk profiles, and remediation functions help address security concerns for your organization. By starting the Vendor Risk Management strategy on a small scale, you can easily showcase value and persuade executives to consider the same due diligence on a larger scale.
How to address common executive objections to TPRM investments
It’s more than likely you’ll run into objections or concerns when asking for a larger security budget—especially for third-party risk management solutions. Here are some common executive objections and how to best address them. Remember to tailor each answer to your specific workplace and business goals.
“We already have security controls in place.”
Explain why existing security controls, like continuous monitoring and data privacy practices within your organization, don’t extend to third parties—and why that’s a major blind spot. Connect the dots between a security incident at a third-party vendor back to your organization, revealing how what impacts them can also impact you.
“What’s the ROI of investing in TPRM?”
Reference cost savings from proactive risk management, emphasizing how financially devasting a third-party data breach can be. Utilize resources like IBM’s annual Cost of a Data Breach Report and recent incidents from your specific industry that might persuade executives to see the benefit of third-party risk management initiatives.
“We don’t have the resources to manage this.”
Highlight how modern TPRM tools automate risk assessments and reporting, reducing manual workload. You can also compare TPRM tools, which are typically automated, to hiring additional third-party risk management personnel—which consumes financial resources and valuable time.
“This isn’t a priority right now.”
Third-party data breaches are not a matter of if but when. The potential risk of a data breach related to a vendor is always present. Third-party risk management also applies to regulatory compliance —which should always be a priority. Tie TPRM to regulatory trends in your industry and show how non-compliance risks would affect your organization.
