Third Party Risk Management Framework

What is a third-party risk management framework?

A third-party risk management (TPRM) framework is a structured methodology organizations use to identify, assess, manage, and mitigate the risks associated with outsourcing services or business operations to external vendors, suppliers, and partners. Given today's interconnected digital ecosystem, a robust TPRM framework is crucial for cybersecurity professionals to ensure that third-party relationships do not compromise an organization's security posture.

Importantly, a framework is developed before any vendor risk management technologies or tools are put in place. In this way, a framework is a proactive step towards defining and optimizing a mature third-party risk management program.

Purpose 

A TPRM framework is essential for managing the inherent risks that arise from third-party partnerships, such as data breaches, compliance violations, and operational disruptions. Organizations today operate within increasingly complex digital supply chains, making comprehensive risk management a necessity rather than an option. An effective TPRM framework helps security analysts and risk managers systematically evaluate third-party risks, maintain regulatory compliance, and ensure that external partners adhere to the organization’s cybersecurity standards.

5 Components of a third-party risk management framework

A successful TPRM framework typically comprises five critical components:

Risk identification

Understanding and cataloging third-party relationships and potential risks, including cybersecurity threats, regulatory compliance issues, and operational vulnerabilities.

Risk assessment

Evaluating and quantifying the risks associated with each third-party relationship through methods such as vendor assessments, security questionnaires, and continuous monitoring tools.

Risk mitigation 

Implementing strategies and controls to minimize identified risks, which could include contractual obligations, vendor audits, or ongoing cybersecurity training.

Continuous monitoring 

Regularly tracking and analyzing the cybersecurity posture and compliance status of third parties, allowing for proactive rather than reactive risk management.

Reporting and governance

Providing clear, actionable insights and regular updates to stakeholders and decision-makers about third-party risk levels, fostering transparency and accountability across the organization.

How to develop a TPRM framework

Developing a robust TPRM framework requires a systematic, phased approach tailored to an organization’s specific needs and regulatory environment.

Begin by assembling cross-functional teams, including cybersecurity professionals, compliance officers, legal experts, and procurement specialists, to ensure a comprehensive perspective.

Next, follow these structured steps:

1. Set a tolerance level: First, clearly define your organization’s risk tolerance and objectives. 
2. Identify and classify relationships: Clearly identify and classify third-party relationships based on their criticality and potential risk impact.
3. Continuous monitoring: Establish standardized assessment criteria and integrate continuous monitoring technologies to maintain real-time visibility into third-party risks. 
4. Develop policies and standards: Establish detailed policies and standards that outline organizational expectations, risk assessment procedures, due diligence activities, and ongoing monitoring practices.
5. Implement automation and technology solutions: Implement automated workflows and leverage AI-driven analytics to streamline risk assessment processes, enhance accuracy, and provide real-time risk intelligence.
6. Continuous refinement: Regularly refine and update the framework based on evolving threats, emerging industry best practices, and regulatory changes.
7. Organizational alignment: Ensure your TPRM framework aligns with business priorities and compliance obligations, promoting a cohesive cybersecurity culture across your entire organization.

By following these steps, organizations can effectively build a resilient and adaptive TPRM framework.

Third-party risk management framework best practices 

Below are best practices and freely-available resources that can help you establish a vendor risk management framework that works best for your organization. 

Leverage existing vendor risk management frameworks

Fortunately, there are many resources in the public domain that can help you develop your cybersecurity framework. A useful starting point is Deloitte’s capability maturity model which provides a valuable roadmap for your program.

Another reference point is the National Institute of Standards and Technology (NIST) Cybersecurity Framework. NIST is the foundation for most emerging cybersecurity regulations and its framework outlines standards, guidelines, and best practices for defining controls and managing cybersecurity risk both in your own organization and across third-party relationships. 

Also worth a look is the ISO 27001 information security management certification. ISO 27001 is considered the international standard for validating a cybersecurity program and is a great way of assessing all the different components of your vendor’s security program. If a vendor has ISO 27001 certification it’s a good indication that they’re doing things right when it comes to securing their data.

Also worth a mention is the Fair Institute methodology which provides a model for understanding and quantifying risk in financial terms. It puts risk in common, easy-to-understand terms that can be shared across the organization.

With so many well-known best practices and established frameworks in place, it’s not necessary to create your own. Furthermore, by leaning on standard approaches and terminology that your vendors already use or recognize (as opposed to a custom framework), the third-party risk assessment and management process becomes much easier.

Factor compliance into your vendor risk management framework

There is also a compliance element that must be factored into your framework. Certain sectors are subject to strict third-party cybersecurity risk management regulations.

In the healthcare industry, for example, continuous third-party compliance with HIPAA and HITRUST, among other regulations, must be addressed by the cybersecurity compliance framework.

Exceptions must also be made for industries that classify or “tier” vendors by risk, as often happens in the financial services sector. For example, a third party may be considered “high risk” if a cyber-attack on their network has the potential to critically impact your business, data, or regulatory status. In such instances, separate policies and procedures must be incorporated into the framework to address high, medium, and low risk third parties.

Take an iterative approach

Finally, it’s important that your third-party cyber risk management framework considers the shifting nature of third-party relationships.

Too often traditional third-party risk management programs focus on fixed points in time, such as the pre-contract due diligence phase. This approach fails to capture risk that may arise as a result of a change in scope, personnel, or strategy. Gartner's study found that 83% of legal and compliance leaders identified third-party risks after due diligence and before recertification.

To account for a constant flux in risk, build policies and processes that enable you to iteratively assess and monitor risk over the course of the vendor relationship. Gartner recommends using a data-driven methodology to determine critical risks to streamline vendor due diligence. For example, once the contract is signed, leverage technology, like security ratings, to continuously monitor third-party networks and detect change.

Don’t go framework crazy

Depending on your industry and the cyber risks you’re seeking to address, the frameworks mentioned above (or portions of them) provide a foundation that can be augmented to meet the needs of your organization. But try not to overdo it. Too many layers in your framework can be hard to govern and enforce, especially if your organization is decentralized and you’re dependent on different teams and business units to keep these processes and frameworks in place.

But rest assured: as your third-party network expands, a well-thought out third-party risk management framework provides a critical foundation that integrates security and risk management into your vendor relationship lifecycle. With a framework as your guidepost, you’ll gain vital insight into where your highest security risk is and make more informed decisions about managing that risk for the long-term.

How to choose a TPRM framework

When selecting a TPRM framework, cybersecurity professionals should evaluate several key factors:

• Scalability and flexibility: Ensure the framework can adapt to your organization’s growth and evolving third-party relationships.
• Comprehensive visibility: Choose a framework that offers robust continuous monitoring and real-time risk detection capabilities, providing objective data and actionable intelligence.
• Integration capabilities: Opt for solutions that seamlessly integrate with your existing cybersecurity tools and business processes, enhancing operational efficiency.
• Ease of use: Look for intuitive interfaces and streamlined processes that enable quick adoption and reduce the complexity associated with third-party risk management.
• Proven results: Prioritize frameworks backed by strong industry validation, customer testimonials, and measurable outcomes, demonstrating their effectiveness in mitigating third-party cyber risks.

Adopting a comprehensive TPRM framework empowers organizations to proactively manage third-party risks, safeguard sensitive data, and enhance overall cybersecurity resilience, ultimately contributing to greater trust and security across their extended digital ecosystem.

Developing a TPRM framework with Bitsight

Bitsight for Third-Party Risk Management and other Bitsight technologies provide all of the tools required to develop and support a third-party risk management framework. With Bitsight, you can:

• Enable your business by bringing on vendors in a timely way: With Bitsight, you can help your organization enjoy the benefits of working with vendors while summarizing and communicating the risk that is associated with each relationship. Bitsight enables you to communicate technical details to stakeholders throughout the organization, using a common language and set of easily understood metrics that enable everyone to make outcomes-based, informed decisions.
• Onboard vendors faster: Smart tiering recommendations, workflow integration, and risk vector breakdowns that identify areas of known risk can help to accelerate onboarding and making your third-party risk management program more scalable.
• Mitigate third-party risk: Make confident, data-driven decisions to prioritize resources, improve operational efficiency, and drive efficient risk reduction across your vendor portfolio.
• Improve executive reporting: Bitsight facilitates data-driven conversations with senior executives and board members by streamlining the reporting process, demonstrating how investments in security directly impact performance, and providing essential metrics and context that enable oversight of your cyber security plan.