Today almost every organization outsources at least some part (if not many parts) of its operations to third parties. That means those organizations must govern the risks of those third parties — but obtaining the assurance you want from your third parties is a daunting task. 

Ultimately, as businesses scale up and use more third parties, you must develop a reliable system to collect evidence from them; it’s one of the most important elements of an effective third-party risk management (TPRM) program. This article will explore what those third-party risks might be and how to collect evidence about third-party risks in an efficient, practical way. 

Common Types of Third-Party Risks

Third-party risks are many and varied. Since businesses already spend significant sums on their own cybersecurity, hackers have tried to target suppliers and partners instead. The hackers’ logic is that those third parties might have weaker security programs, and therefore could become a conduit so the hackers can reach their ultimate target: you. 

That said, cybersecurity isn’t the only third-party risk out there. Others are listed below. 

Operational Risks

Operational risks are any loss caused by a disruption in your business continuity, such as losing a facility due to natural catastrophes or a cyber attack that shuts down the leading company’s operational systems.

For example, if a critical component of your supply chain is in a location that has just undergone a significant earthquake, that might jeopardize your capacity to receive raw materials, even if your assets and facilities are spread worldwide.

Reputational Risks

Reputational risk is the possibility that a partnership with a third party or vendor can result in a dispute, security breach, or legal entanglement that harms the public perception of your organization.

Compliance Risks

Regulatory and compliance risks arise when third parties fail to meet the compliance requirements of relevant laws or your internal policies. Any such regulatory compliance failure by a third party may make your business liable via association.

Strategic Risks

Strategic risks develop when a company makes poor business choices or implements business decisions incompatible with its strategic objectives. In other words, you expose yourself to strategic risk by selecting the incorrect third party to undertake essential duties.

Financial Risks

Financial risks harm your company’s financial performance and disrupt sales or other revenue-generating processes, making revenue targets fall short. Financial issues at a vendor or third party in your supply chain might cause financial concerns for your company.

Is My Business Liable for Third-Party Breaches?

If your company exchanges private information (say, customer data) with third-party vendors, you must guarantee that the vendor can protect that information as necessary. If the vendor fails to do so, your company may be held accountable for the losses resulting from a data breach affecting your information.

For example, the European Union’s General Data Protection Regulation (GDPR) requires businesses to safeguard and keep track of the personal data they collect, process, store, and share; these duties extend to third parties handling data on your behalf. The law also requires enterprises to notify data privacy regulators and consumers swiftly in the case of a breach.

Furthermore, while the California Consumer Privacy Act (CCPA) is far from clear on this subject, a company that shares personal information with a third party may be held accountable for the third party’s breaches of the law.

The Importance of Third-Party Due Diligence 

As organizations expand, they must become more aware of legislation, data protection requirements, and financial concerns such as money laundering and terrorism funding. This means that enterprises must invest more in third-party due diligence methods.

Unvetted third-party connections might pose many dangers to the firm. Large organizations with many third-party relationships should prioritize third-party due diligence activities.

Each company should have a third-party due diligence checklist to examine vendors and staff.

Best Practices for Third-Party Evidence Collection

We’ve compiled a list of recommended practices for conducting third-party risk assessment surveys and collecting data.

Understand Your Vendor Environment

To better understand how to evaluate third-party vendors, investigate frequent problems or typical security breaches in the vendor’s area of focus.

An automated security monitoring technology can help you receive constant insight into these concerns. These tools may help you communicate more effectively with your vendors about potential risks, identify risk areas, and define your critical risk indicators.

Monitor Your Vendors Regularly

Due diligence begins with a questionnaire sent to your vendors asking about their risks — but you need to do more than one single questionnaire. You need to monitor your vendors at regular intervals (the more risk they pose, the more frequently you monitor) to see whether any vendor’s risk profile has changed. (You also want to monitor their progress on resolving outstanding risk issues that need attention.)

Allow other parties to contact you if they have any issues with your inquiries or the evidence you are requesting. Be sure to have this recorded adequately as part of the process.

In addition to developing a healthy check-in procedure, we advocate setting a clear timeframe for completing an evaluation. This allows both you and the vendor to cooperate on your joint objective.

Use Technology to Streamline the Process

Risk assessment questionnaires are not new, but you’ve probably been sending most questionnaires by email and using spreadsheets to check for responses. Technology can help you improve your process by allowing you to monitor replies and remedy items more efficiently. With the appropriate tool, you can give your third-party vendors:

  • The ability to submit answers, proof, and any questions they may have in an easy-to-use, collaborative setting.
  • A method for delegating replies inside their businesses, so that you receive accurate, expert answers for each relevant field.
  • A rapid approach to correct and discuss concerns that allows you to analyze evidence in the context of each question’s responses (making the process much more efficient).

The easier it is to use the technology, the more time you can spend working with suppliers to decrease risks rather than chasing down details of missing data.

Validate the Data

After gathering the responses, check and confirm the information. Our experience has shown us that external validation is as critical as internal validation.

One fantastic method for obtaining external validation of your data is to use an automated tool. This can swiftly uncover issue areas and help with challenging remediation talks. It is critical to keep track of questions that may be high-risk or contentious. So implement some way to flag topics that require further in-depth discussion or internal assessment.

Provide Questionnaire and Assessment Feedback

As you prepare to conclude an evaluation, maintain control over what third-party vendors eventually submit. This includes the opportunity to return a questionnaire that does not fit the standards or complete the procedure.

After each assessment, you should provide a report on the results and outstanding concerns for remediation to share with your team.

Tools for Third-Party Risk Management

When choosing third-party risk management software, consider the following features:

  • Risk assessment automation. Look for solutions that automate time-consuming procedures such as scoping evaluations, disseminating surveys, and collecting replies. Automated assessment scoping helps to focus on essential risks while reducing vendor management fatigue.
  • Configurable reporting. Robust reporting capabilities are required to demonstrate compliance with rules and industry standards. Configurable reporting enables you to create role-specific reports and dashboards easily, demonstrating the effectiveness of your risk management strategy.
  • Continuous monitoring. Your third-party risk management software should track vendor performance and risk changes in real-time. This will help you to identify any changes in their risk status, allowing swift reaction to emergent situations. The tool should also deliver alerts about any new risks.
  • Integration with compliance tools. Embedded compliance solutions assure compliance with corporate rules and external requirements, lowering supplier risk. This makes them particularly helpful in tightly regulated industries like banking and government.

How ZenGRC Helps Organizations Manage Evidence Collection at Scale

Keeping track of third-party providers and their risks to your company may be too much for spreadsheets or traditional approaches. A robust third-party risk management program is required to streamline your onboarding and vendor risk assessment process, and it takes active and consistent management to restrict a company’s third-party risk exposure.

RiskOptics ZenGRC is simple and easy to use. It improves evidence management, workflows, and documentation for risk management and regulatory compliance.

To assist vendor risk management, the platform provides a simple user experience, automation, and analytics. ZenGRC administers and collects due diligence questionnaires; it will even combine the data and offer a risk score to each seller.

It automates compliance and demonstrates how your compliance posture affects your core objectives. This real-time picture lets you explain the effect to critical stakeholders and make informed decisions to safeguard the company and its data while earning confidence.

Get a demo and discover more about how ZenGRC may help your organization.