Whenever an organization outsources part of its business process to an outside party, it introduces various risks to the primary organization. Third-party risk management refers to how organizations address and mitigate security risks across their entire library of vendors and suppliers.
Unfortunately, third-party risk exposure can be difficult to manage and comes with many challenges organizations must address for an effective third-party risk management program.
Read on to learn more about the top five challenges in managing third-party risks and how your organization can implement solutions to overcome them.
Check out how UpGuard Vendor Risk helps organizations manage their TPRM challenges. >
What is Third-Party Risk?
Third-party risk is any risk introduced to an organization by outside parties in its ecosystem or supply chain. Third parties include any individual or organization with access to internal company or customer data, systems, processes, or other privileged information. Common third parties include:
- Vendors
- Suppliers
- Partners
- Contractors and Subcontractors
- Service Providers
Additionally, if any of those third parties utilize a vendor in their own workflows, those become fourth parties to your organization that may also introduce similar risks. If any of these parties don’t have proper controls or risk management practices, they can potentially introduce risks to the primary organization. Depending on the type of risk, the resulting damage can be catastrophic for an organization. Third-party risks include:
- Cybersecurity risks: If a third party has poor cybersecurity measures, there is a risk of exposure or loss of sensitive data due to a cyber attack, security breach, or other incident.
- Operational risks: If a third party fails to deliver upon agreed-upon goods or services, it can impact your organization’s business continuity and daily operations
- Legal, regulatory, and compliance risks: A third party can potentially impact your organization’s compliance with local regulations or legislation, especially if your organization is in the finance, healthcare, or government sector.
- Reputational risks: Third parties can damage your organization’s reputation and integrity after significant events, like the high-profile Target third-party data breach in 2013.
- Financial risks: If a third party does not deliver goods or services, it can harm your organization’s economic initiatives and goals
- Strategic risks: Ultimately, an organization can potentially fail to meet its business goals because of a third-party vendor
- Environmental risks: Third parties with poor environmental practices like high-fossil fuel usage, non-renewable materials, or failing to adhere to environmental regulations can negatively impact the primary organization.
An effective Vendor Risk Management program helps address and reduce these risks, protecting the primary organization and third parties. However, managing third-party risks is not a simple process and comes with various challenges stemming from the complexity of modern supply chains, partnerships, and vendor relationships.
Top 5 Challenges in Managing Third-Party Risk
Below are the top five challenges organizations face in the third-party risk management process. While not an exhaustive list, these are some of the most significant and common challenges that come with TPRM. Solutions to these challenges are included, providing organizations with a starting place to enhance their TPRM.
1. Identifying Cybersecurity Risks
With the growing digital landscape across all business sectors, cybersecurity concerns are one of the organizations' largest challenges when developing and implementing their third-party risk management program. Often, organizations don’t have the resources or knowledge to address cybersecurity measures in their third parties. Webinars and resources can only go so far but usually leave organizations unprepared to respond when cyber attacks impact a third party and their organization.
Cybersecurity concerns with third parties include:
- Data breaches
- Ransomware or malware
- Inadequate incident response
- Lack of monitoring
- Weak access control
- Insecure interfaces or APIs
- Lack of encryption
- Outdated software and unpatched systems
- Lack of security standards
Collectively, a primary organization can have a robust cybersecurity strategy. Still, unless they monitor and identify risks in the cybersecurity strategy of their third parties, they will always be open to risks.
The primary way to address cybersecurity concerns within third parties is to implement a third-party risk management program focusing on cybersecurity. Your program should continuously monitor each third party’s risk profile, identifying potential vulnerabilities that could lead to cyber-attacks.
UpGuard Vendor Risk is a perfect example of a robust TPRM that monitors your third-party vendors' cybersecurity posture. This all-in-one platform utilizes tools like vendor risk assessments and risk-based questionnaires to assess your vendors. It provides real-time updates when new cyber risks are identified, automatically notifying vendors and tracking the remediation process. So, even if your organization is not well-versed in cybersecurity best practices, Vendor Risk automates the process, helping protect your organization from any cybersecurity concerns.
Check out more info about UpGuard’s Vendor RiskTPRM platform here >
2. Volume and Complexity of Third-Party Relationships
Modern organizations have relationships with hundreds or even thousands of third parties. These include suppliers, vendors, contractors, consultants, and more. New vendors can be added, and existing vendors can be removed daily. Additionally, rapidly scaling companies may take on new vendors very quickly. A significant challenge in managing third-party risk is the volume and complexity of third-party relationships for modern organizations.
The number of third parties an organization partners with makes tracking potential risks or regulatory compliance extremely difficult. Third-party risk management requires organizations to monitor and identify risks across all third parties, performing different due diligence and decision-making levels. If even one is missed, that vendor may have a risk that could cause severe damage if exploited.
To help alleviate this challenge, identify a third-party risk management program that can handle a large number of vendors and keep them organized from onboarding to exit. UpGuard’s Vendor Risk TPRM platform features a vendor library that helps organizations find, track, and monitor the security posture of their third parties.
To help organize that data, Vendor Risk also categorizes vendors in one centralized location. Users can sort by vendor tier, name, score, or custom labels—monitoring vendors in one centralized location. Each vendor is also compared against industry benchmarks, so you can watch how their security posture changes over time.
3. Lack of Visibility
A successful TPRM program should allow organizations to quickly and easily view their third-party risks across all their vendors. However, organizations often lack a holistic view of their third-party relationships and associated risks. This makes it difficult to consistently track individual vendor performance, security postures, risk mitigation, and regulation compliance across all third parties. Like most areas in business, having solid visibility over day-to-day workflows and management processes is vital to ensuring operations are running smoothly, and any issues are remediated promptly.
TPRM without visibility slows down this workflow, often leading to missing risks and miscommunications throughout the third-party risk management process. The obvious way to overcome this challenge is to increase visibility over your organization’s third-party risks, but this is easier said than done. Without a proper TPRM program, attempting to increase visibility can be difficult or, in some cases, impossible.
UpGuard’s Vendor Risk has visibility built into its TPRM platform, prioritizing comprehensive visibility over all your organization’s vendors. UpGuard’s enhanced visibility also enables businesses that adopt an ESG (environmental, social, governance) approach to assess their third-party vendors using personalized compliance metrics or an in-house growth plan. The Reports Library lets you get instant insights on everything from vendor risk to vendor subsidiaries and even provides custom reporting templates tailored to your organization’s needs.
Learn more about how UpGuard increases visibility across an organization’s TPRM program.>
4. Regulatory and Compliance Challenges
Data privacy and cybersecurity regulations increase as digital data becomes ingrained into business operations. These regulations can indirectly affect your organization if you work with a third party that must comply with them. If a third party is non-compliant with a specific law, your organization may be liable for any damages resulting from the non-compliance.
One example of these regulations is the General Data Protection Regulation (GDPR). This regulation was implemented by the European Union (EU) in 2018 to ensure the protection of the privacy of EU citizens and requires companies to report certain types of personal data breaches to authorities within a specific timeframe. If your company operates in the EU but utilizes a third party outside the EU to handle personal data, the third party would still be required to comply with the GDPR since the data pertains to EU citizens.
Compliance across third parties can be complex and introduces another significant challenge in third-party risk management processes. There are many ways to address this challenge, but it starts with being knowledgeable about the required regulations your organization must comply with and communicating that to vendors. Implementing a Governance, Risk, and Compliance (GRC) strategy is a good start and quickly gets internal stakeholders on board. Utilizing compliance frameworks is another step toward helping vendors comply with required regulations.
UpGuard Vendor Risk features compliance reporting, enabling customers to view their or vendor’s risk details mapped against recognized security standards or compliance frameworks, like NIST CSF or ISO 27001. Organizations can identify areas of compliance framework vendors are currently complying or not complying with and also understand risks detected in specific sections of the compliance framework. These industry standards are a great stepping stone toward compliance with particular regulations.
5. Lack of Continuous Monitoring
Third-party risks change over time. An organization may assess a third party as low-risk today, but that assessment could be different tomorrow. Continuous monitoring is necessary for a successful TPRM program but is inherently challenging to implement effectively.
Organizations with a large number of vendors may struggle to monitor each of them consistently with their current resources and technology. Additionally, the risk landscape constantly changes with new threats, regulations, and business practices, impacting what continuous monitoring must keep up with. A constant monitoring program must be able to adapt to these changes and stay updated on new ones. And after all of that monitoring, those metrics must be analyzed and interpreted correctly. Together, continuous monitoring is a major challenge in third-party risk management.
To address this challenge, organizations should prioritize continuous monitoring through an automation platform that regularly monitors vendors’ security risks and promptly provides updates. UpGuard Vendor Risk is a great option, with monitoring tools like vendor security ratings, domain security ratings, and custom notifications.
UpGuard security ratings are easy to understand for non-technical stakeholders and senior management and are updated daily. They are based on each of your vendor’s underlying domains and security posture and consider any risks identified in our security questionnaires. These continuous monitoring tools make it easy to assess your third-party risk across all vendors.
Learn more about UpGuard security ratings and how it supports TPRM programs.>
Upgrade Your Third-Party Risk Management with UpGuard
While third-party risk management is necessary to enhance your organization’s information security when outsourcing to third parties, it comes with various challenges that make TPRM difficult to implement and manage. Overcoming these challenges is crucial in ensuring your organization is secure against cyber attacks and outside risk.
If your organization wants to upgrade your TPRM, consider UpGuard Vendor Risk. Our all-in-one TPRM platform helps organization streamline their third-party risk management strategies by automating risk assessment workflows, providing real-time cybersecurity updates, and increasing visibility across their entire library of vendors. Vendor Risk also helps organizations:
- Spend less time monitoring and assessing your vendor’s security posture with vendor questionnaires and vendor tiering according to the level of risk.
- Get real-time updates on your vendor security posture with daily monitoring and instant reports on vendor risks.
- Streamline vendor lifecycle management with an automated workflow and tailor-made reports for stakeholders.
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