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What is third-party risk management?

Third-party risk management is becoming more and more important for organisations around the globe, with increased risk and harder-to-identify vulnerabilities, it's no surprise companies are looking to bolster their defences.

Kay Baines February 2023 • 3 min read

What is third-party risk management?

Third-party risk management is a form of risk management that focuses on identifying and reducing risks relating to the use of third-party vendors or an organisation's supply chain. It involves a comprehensive analysis of an organisation's security posture and how their vendors, suppliers and contractors can impede their safety.

Third-party risk management effectively manages their relationships by streamlining due diligence and prioritising focus on critical risks, relationship control and ongoing monitoring.

What are the challenges of third-party risk management?

Identifying potential risks

Organisations must be able to identify and assess potential risks posed by third-party vendors or service providers in real time in order to effectively manage them.

Establishing effective controls

Once potential risks have been identified, organisations must then establish controls to mitigate these risks, having contractual agreements with suppliers can help.

Keeping up with changing regulations

The regulatory landscape is constantly changing, which means organisations must stay up to date on new regulations (for example, DORA and the NIS 2.0 Directive).

Ensuring information security

Data security is a major concern for many companies when working with third parties, as sensitive information such as customer data or financial records can be accessed.

Why is third-party risk management important?

As businesses develop and strengthen their partner and supplier network, increased risk comes with it. Being compliant with legal regulations, cementing your financial stability and optimising your organisation's performance are all ways you can benefit from understanding your third-party risk.

Bridging the gap between your external parties activity and how that can directly impact your business could uncover vulnerabilities that you hadn't thought of.

What are the best third-party risk management practices?

Evaluate supplier risk

Assigning suppliers a form to measure security practices helps organisations compare vendors before awarding a contract.

Further questionnaires

Questionnaires will catch most vulnerabilities, but some will slip through which is why continuous testing is vital.

Technological reviews

With the digital world taking over, organisations can’t risk being left behind by technology, so tracking is crucial.

The benefits of third-party risk management assessments

Using third-party risk management software can provide organisations with a number of benefits.

By automating processes such as monitoring, evaluating, and reporting on third-party risks, the software can help organisations reduce the time it takes to identify and mitigate potential risks.

Additionally, using third-party risk management software can improve accuracy and consistency when it comes to assessing potential risks associated with vendors or suppliers.

Lastly, using this type of software can also help organisations ensure that they remain compliant with relevant laws and regulations.

How A&O IT Group can help mitigate your third-party risk

We provide industry-leading third-party risk management software in partnership with Mastercard, RiskRecon to help protect your organisation against third-party risk.

Find out more about RiskRecon