Organizational risk management often mentions third-party risk management (TPRM) and vendor risk management (VRM). The cybersecurity industry commonly uses these terms interchangeably, but there is a distinct difference between these two crucial components of an organization's broader risk management strategy.

Understanding what differentiates TPRM and VRM will help your organization better evaluate your inventory of third parties, including your vendors, and appropriately assess their level of risk while building a solid VRM program within your existing TPRM framework.

This blog explores the differences between TPRM and VRM, defines vendors versus third parties, and introduces best practices for integrating vendor risk management approaches into a third-party risk management program.

Tackle TPRM and VRM with UpGuard Vendor Risk >

What’s the difference between TPRM and VRM?

The main difference between vendor risk management (VRM) and third-party risk management (TPRM) is that VRM is a component of TPRM. Both are essential for organizations to implement appropriate risk management practices, effectively allocate resources, and protect their interests in a complex network of external relationships.

To identify the relationship between TPRM and VRM, we must explore the scope and focus of each of these approaches.

Third-party risk management explained

Third-party risk management is a broad discipline that identifies, assesses, monitors, and mitigates risks associated with an organization's third-party relationships. TPRM includes vendors, business partners, contractors, service providers, and any external entities interacting with the organization's ecosystem.

TPRM deals with a wide range of risks, including:

  • Operational risk
  • Cybersecurity risk
  • Compliance risk
  • Financial risk
  • Reputational risk
  • Strategic risk

TPRM involves comprehensive processes, including due diligence during the selection of any type of third party, ongoing monitoring of existing third parties, and developing strategies for responding to the types of risks outlined above. It requires a holistic view of all third-party relationships to manage and mitigate risks effectively.

The main goal of TPRM is to protect the organization from potential risks associated with outsourcing, ensure business continuity and compliance requirements, and maintain trust with customers and stakeholders.

Related: Designing a Vendor Risk Management framework.

Vendor risk management explained

Vendor risk management is a subset of TPRM that specifically focuses on managing risks associated with vendors or suppliers providing an organization with goods or services. It's a more focused approach that deals primarily with the supply chain and service providers.

VRM addresses risks specific to the services or goods a vendor provides, which include:

  • Supply chain risks and disruptions
  • Vendor financial instability
  • Quality issues
  • Information security risks
  • Data privacy (when a vendor has access to an organization’s data)

VRM processes include conducting due diligence before engaging with new vendors, continuous monitoring of vendor performance and risk exposure, and managing the contractual relationship to ensure compliance and mitigate risks.

VRM aims to ensure that vendors or suppliers meet contractual obligations, comply with industry standards (such as NIST CSF, GRC, and ISO 27001), and not pose unacceptable risks to the organization’s operational integrity, security, or compliance posture.

Learn how to implement an effective VRM workflow >

Cyber vendor risk management

Cyber vendor risk management refers to the process of identifying, assessing, and addressing cybersecurity risks associated with third-party vendors. It entails a combination of objective data sources, such as security ratings and data leak detection, and qualitative data sources, such as security questionnaires, to gain a complete understanding of each vendor's security posture

A cyber vendor risk management program is designed to manage cybersecurity risks specifically for third-party vendors, such as software service providers and IT products. Due to the increasing complexity of vendor supply chains and the explosion of data, relying on outdated manual processes and subpar technology solutions is no longer acceptable for organizations to manage vendor cybersecurity risks.

Integrating VRM and TPRM into your organization

A comprehensive third-party risk management program is essential for any organization that uses third parties in its ecosystem. To maximize your TPRM program, implement vendor risk management approaches when appropriate to ensure all types of third-party risks are accurately identified, managed, and mitigated.

Below are best practices for integrating VRM and TPRM into your organization.

Define the scope of VRM within the TPRM framework

The first step to integrating vendor risk management into your third-party risk management program is to define the scope of VRM within the existing TPRM framework.

Begin by identifying and classifying vendors to understand which third parties are considered vendors based on their provision of goods and services to your organization. Decide which vendors and services will be included in the VRM process, considering factors like criticality, access to sensitive data, and regulatory requirements.

Related: Vendor Risk Management examples

Implement vendor due diligence

Vendor due diligence is critical for vendor risk management processes, which help vet vendors before signing contracts and entering into business relationships.

Establish a thorough due diligence process for new vendors. Due diligence should include detailed background checks, financial health assessments, and reviews of security and privacy practices. Keep detailed records of due diligence efforts and outcomes, which can support decision-making and compliance efforts over time.

Conduct risk assessments

Third-party risk assessments are an essential part of every TPRM framework. To better evaluate vendor risks, these assessments can be specified to the unique risks vendors present to any organization.

Develop vendor risk assessment criteria by evaluating financial stability, cybersecurity practices, data protection, compliance with relevant regulations, and operational resilience. Perform initial and ongoing assessments by evaluating each vendor before onboarding and periodically throughout the vendor relationship.

Monitor and manage vendor performance

Monitoring and managing vendor performance throughout their lifecycle is vital to identify any problem areas or vulnerabilities before incidents occur.

Create processes or utilize automated tools for ongoing monitoring of vendor performance and risk exposure. Quickly assess any identified risks to prevent security incidents like data breaches or unauthorized access. Additionally, clear performance metrics and key performance indicators (KPIs) for vendors should be set, aligning with organizational goals and risk tolerance.

Establish communication and reporting mechanisms

Vendor risk management should include a process to report risks when they occur and communication methods to keep stakeholders informed about vendor performance.

Develop regular reporting mechanisms for vendor risks, which can be integrated into the broader TPRM reporting framework. These reports are essential to mitigating identified vendor risks and keeping vendors informed when they need to update security controls or reach compliance with relevant regulations. Additionally, maintain open lines of communication with stakeholders across the organization to share insights and updates on vendor risks.

Create contingency and exit strategies

Over time, organizations may terminate vendor relationships due to various factors, including failing to meet KPIs, organizational strategy, or pricing constraints. Having contingency and exit strategies streamlines the offboarding process.

Prepare a contingency plan for alternative actions if a vendor fails to meet obligations or poses a significant risk, including finding alternative suppliers or solutions. Have clear strategies and procedures for ending vendor relationships, ensuring minimal organizational disruption.

Comprehensive vendor risk management and third-party risk management with UpGuard

The best way to integrate a vendor risk management program into your third-party risk management process is by using a risk management solution like UpGuard Vendor Risk, which automates processes and provides insights across your entire third-party ecosystem.

Vendor Risk is an all-in-one platform designed to streamline third-party risk management, including specific vendor risk management processes. You can automate your assessment workflows in one centralized dashboard and receive real-time notifications about your vendors’ security. Additional Vendor Risk features include:

  • Security questionnaires: Automate security questionnaires with workflows to gain deeper insights into your vendors’ risk profiles. Utilize templates (NIST, GDPR, HIPAA, and more) and custom questionnaires for specific security compliance needs.
  • Security ratings: Instantly understand your vendors' security posture with our metric-driven, objective, and dynamic security ratings.
  • Risk assessments: Let us guide you each step of the way with streamlined workflows that encompass gathering evidence, assessing risks, and requesting remediation.
  • Monitoring vendor risk: Monitor your vendors daily and view the details to understand the risks impacting a vendor’s security posture.
  • Reporting and insights: UpGuard’s report templates provide tailor-made reports for different stakeholders.
  • Managed vendor assessments: Partner with an UpGuard analyst and put your vendor assessments on autopilot.

Get started with UpGuard Vendor Risk today.

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