Third-party risk monitoring is the process of continually assessing third-party vendors that have entered into a business relationship with your company, to understand how much risk they pose to your organization at any given moment. Monitoring is a critical component of any third-party risk management program (TPRM).
The first step in third-party risk management is due diligence that you perform on a vendor before entering a business relationship. No matter how good that due diligence is, however, monitoring is critical. It can protect your company from issues that surface over time.
These same monitoring standards should also apply to any companies hired by your contractors, which would be fourth parties to you. In today’s world of interconnected systems, it’s imperative to understand how your vendors and contractors process the information you share with them.
Why Is Third-Party Risk Monitoring Important?
As mentioned above, third parties expose your company to a range of risks. While these risks are not directly in your control, a third-party data breach could still directly disrupt your business and damage your reputation.
Third-party risk assessment and a TPRM program enable your organization to build a partnership of trust with your vendors. You can collaborate with them to evaluate cybersecurity risks within their systems and to identify mitigation strategies to protect business continuity for both of you.
Continuous monitoring is an active process. Instead of responding to risk management meltdowns, both organizations can focus on optimizing information security before any meltdown happens. Third-party vendor management is essential to maintain productive relationships.
How Is Third-Party Risk Monitoring Conducted?
A robust third-party risk monitoring process should follow a relationship lifecycle, starting with planning.
Developing a plan to handle the relationship is the first step in the third-party risk management process. This step is necessary when a company looks at regulatory contracts with third parties that provide (or assist in) critical activities.
The planning phase is also an excellent opportunity to discuss expectations for automation to streamline workflows and reduce errors. You will want to know up-front if the third-party vendor is not interested in collaborating on efficient procurement processes.
Due Diligence and Third-Party Screening
Due diligence questionnaires are a crucial step in learning about your new vendor. Doing business with shady characters exposes your business to operational and reputational risk. All potential vendors must go through comprehensive screening to ensure that they are like-minded and follow norms for ethics and integrity.
A solid contract is a fundamental piece of effective third-party risk management. Carefully outline service level agreements (SLAs), pricing, payment terms, and other supply chain expectations. Include requirements in the contract for cybersecurity risk monitoring and immediate remediation of information security gaps.
Hold suppliers accountable and perform continuous monitoring. When onboarding a new vendor, it may be advantageous to perform monthly reviews until the relationship and expectations have stabilized. Quarterly or annual reviews may be sufficient for mature vendors. Standardized templates and dashboards streamline ongoing monitoring activities.
Part of risk management is the planning of contingencies and mitigation strategies. Expect the unexpected, and develop a backup plan for every vendor in your supply chain. Identify alternative vendors to transition the business to another third party or see whether you can bring production in-house. Investigate alternatives in advance to avoid last-minute business continuity risks.
Why Are Control Assessments Important To Risk Management?
A company’s overall risk profile depends on the internal controls it uses to monitor and mitigate potential risk factors. If these controls can be bypassed at any point, you’ll need to examine the potential damage to your risk profile. So assessing the state of a third party’s internal controls is integral to the oversight and monitoring of that third party over the long term.
By engaging in ongoing monitoring of third parties, you’ll be alerted to any potential issues more quickly, and have more time to address those issues before they cause significant harm. If the possibility for a data breach or risk to information security is high, your company will need to act quickly to implement remediation strategies and verify effectiveness.
Be sure to have a solid risk management framework and monitoring system in place when forming a business relationship with any third party. Data security and the ability to track operational risk should be an essential part of your decision-making process when onboarding new vendors.
How Often Should Monitoring Be Done?
The third party should perform continuous risk monitoring in real-time to prevent cybersecurity risks and data breaches of the sensitive data you share with it. The third party should provide a dashboard of information security and quality metrics regularly. The most critical risks should be examined quarterly, if not monthly. Less critical vendors may be reviewed annually.
You should perform comprehensive third-party risk assessments annually. Data provided in the monthly or quarterly information security and quality metrics will guide these assessments.
Cybersecurity is constantly evolving, and security controls can quickly be rendered ineffective. Consistent monitoring can bring that threat to light so you can respond promptly to cybersecurity risks.
Third-Party Risk Monitoring Best Practices
Although third-party risk management policies are well intended, they are often challenging to sustain. Follow these five best practices to build a solid third-party risk management program.
Establish a Framework
First, organizations must define the issue they want to address with the process. This implies setting up a framework that identifies risk management and compliance obligations.
This process assists the organization in identifying its risks and making sure that it has the necessary attributes to assess suppliers. Each framework is unique, but most have a common structure and similar basic components.
Traditionally these processes require manual activities, which means they do not have long-term durability and efficiency. By introducing a technology platform, your company can develop a standardized process, improve transparency, facilitate communication, and optimize resource use.
Build a Vendor Inventory
It is critical to identify which third parties are vital to your business. To improve the effectiveness of your TPRM program, create an inventory of all the vendors you have and classify them based on the products or services they provide and the data they handle.
Improve Third-Party Risk Management with ZenRisk
Keeping track of third-party vendors and their threats to your business can be too much for spreadsheets or traditional methods. A robust vendor risk management program is necessary to help you streamline your onboarding and vendor risk assessment process.
Reciprocity ZenRisk is intuitive and simple to use. It streamlines evidence management, workflows, and reporting for risk management and regulatory compliance.
The platform offers a simple user experience combined with automation and analytics to facilitate the vendor risk management process. ZenRisk distributes and collects due diligence questionnaires. It will even aggregate the results and assign a risk score to each vendor.
Workflow management features offer easy tracking, automated reminders, and audit trails. The ZenConnect feature enables integration with popular tools, such as Jira, ServiceNow, and Slack, ensuring seamless adoption within your enterprise.
If you are interested, you should schedule a demo today!