The average business engages over 88 different third-party partners, with each partner opening up that organization's sensitive financial data, customer information, and infrastructure to potential vulnerabilities. Every third-party vendor increases the number of potential entry points and adds another layer of complexity to managing relationships, costs, compliance requirements, and performance. Unfortunately, third-party data breaches rose 49% year over year in 2024, with 61% of companies experiencing a cybersecurity incident.
Proactive risk mitigation is crucial in defending against financial, reputational, and operational damages, with 90% of organizations investing in their Third-Party Risk Management (TPRM) program. TPRM is a comprehensive strategy for coordinating internal stakeholders, solidifying vendor processes, and safeguarding critical infrastructure against cyberattacks.
Third-party systems and providers, such as customer relationship management (CRM) systems, payroll providers, or even IT vendors, are the most significant vulnerabilities in a company's security posture. Due to the complexity of managing multiple vendors and their wider-reaching consequences, a third-party data breach costs almost twice as much as a typical incident.
Take a look at a few reasons to prioritize TPRM:
For example, 35% of all reported healthcare data breaches were sourced from unauthorized access to third-party vendors and their systems. Because these vendors store protected health information (PHI), it's essential to thoroughly vet their data encryption protocols, access control, incident response plans, and more.
According to McKinsey, risk leaders are most concerned about financial impact, customer harm, and reputational damage. To maintain regulatory compliance, minimize risks, and reduce the likelihood of a costly data breach, organizations are strongly encouraged to align TPRM into their enterprise risk management processes, create a standardized procedure for risk assessment and risk scoring, and consider artificial intelligence (AI) tools for enhanced security automation.
Align TPRM processes into the enterprise risk management (ERM) framework for a comprehensive organizational strategy. Instead of siloing security risk management, third-party risks are an extension of your business, building a more holistic and interconnected cybersecurity posture.
It's not enough to assess a vendor's security posture only during the due diligence phase. Only 13% of organizations continually monitor ongoing risk, creating a gap after the initial implementation. Organizations should understand a vendor's protocol for their risk lifecycle from identification to assessment to mitigation and monitoring.
Here are a few tips for assessing vendor risk:
A risk score calculates the likelihood of an event occurring with the potential impact, quantifying an organization's vulnerability. To do this, define your risk categories (financial, operational, security, etc) and then assign weights depending on importance and potential impact. Collect data using vendor questionnaires, independent audits, and materials requests to calculate their potential risk score. Determine your company's risk threshold and see if a vendor's score is too high or adequate
Only 9% of organizations are leveraging AI in risk management and compliance. Leverage AI tools in your TPRM processes for predictive analytics, continuous monitoring, dynamic risk scoring, and threat detection. New AI tools reduce the manual burden on security assessments and provide another layer of protection. AI tools also help automate data analysis during the initial risk-scoring process, aggregating different financial records, documents, and reports. In a real-life example, Vistrada leveraged Tableau Prep to aggregate multiple data sources from third-party vendors and store them for future risk management reporting.
Here are a few other examples of how AI supports risk management:
A systematic, integrated approach to risk management makes security an organization-wide responsibility and ties operational risk, cyber risk, and strategic risk together for a holistic approach. Integrated risk management combines everything from employee security awareness training to physical security around office headquarters or endpoint management for employee personal devices. This strategy brings together proactive security measures and aligns them with larger business objectives.
TPRM is a dynamic space with continuous regulatory updates, ESG compliance considerations, and a rapidly evolving threat landscape. Schedule a consultation with Vistrada to discuss an integrated risk management program for an aggressive and proactive security approach.