treat third-party risk as a strategic function. They have well-documented policies followed across all departments, run automated risk assessments, and have structured workflows that cover the full vendor lifecycle. They standardize how risks are mitigated and continuously monitor vendors with automated systems. Reporting becomes regular and datadriven, enabling smarter decisions and ongoing improvements. Communication with vendors shifts towards partnership, focusing on mutual benefits of managing risk well.
Finally, at the highest level, very few companies reach what you might call“ visionary.” Here, third-party risk management is fully automated and proactive. The program anticipates potential risks across a broad range of areas- not just cybersecurity but also operational, financial, reputational, environmental, and even things like ESG factors. These organizations work closely with their vendors to not only reduce risks but also improve their vendors’ own businesses. Even though some risks always remain, they have solid, tested plans to handle them quickly and effectively.
Seven Steps to Building a Better Third- Party Risk Program
Moving from just reacting to vendor risks to managing them smartly and smoothly takes work, but it’ s worth it. There’ s a clear path you can follow to improve your program step-by-step. I like to think of it as seven stages that together build a solid, ongoing approach to managing thirdparty risk.
The first step is all about how you choose your vendors. Usually, different teams have different priorities- engineering cares about whether the vendor can deliver what they promised, procurement looks at financial stability, security wants to know about data protections, and compliance checks that audits and regulations are met. But if everyone’ s working off their own information, decisions can get slow and disorganized.
What really helps here is having a single place where all vendor info lives, with risk ratings and profiles that everyone can access. Without that, comparing vendors becomes difficult and time-consuming. Many companies start by using spreadsheets and manual reviews, but this often leads to inconsistent answers, gaps in understanding, and delays.
The next stage is getting vendors properly onboarded. Contract negotiations and management can be a headache, especially
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When it’ s time to end a vendor relationship, don’ t forget that risks don’ t just disappear. Sensitive data must be returned or securely destroyed, access to your systems needs to be cut off, and any ongoing obligations should be carefully wrapped up. Surprisingly, many companies overlook this stage during offboarding. This leaves the door open to lingering security issues or compliance problems that could cause trouble down the line.
when you rely on manual processes. When different teams keep vendor info in their own silos, it’ s tough to see the full picture of risk and obligations. Making onboarding smoother means centralizing vendor data and giving the right people access to update and review it. Some companies use tools that let them connect their existing vendor systems through APIs( Application Programming Interface) or shared files, which speeds things up a lot.
Once you’ ve onboarded your vendors, it’ s time to figure out how risky they really are. Not all vendors need the same level of scrutiny. A local office supply company is usually a lower risk than a vendor providing core IT services. So, assessing inherent risk- the risk a vendor poses before you consider any controls- is crucial. This helps you focus your efforts on the vendors that matter most and tailor your assessments accordingly.
With that baseline, the next stage is actively assessing vendors and managing any risks you find. Different types of vendors have different risk factors, so you need different questionnaires and assessments for each group. But without a consistent process, this can turn into a lot of“ reinventing the wheel,” with one-off surveys that vary in quality and completeness. Tracking which risks still need fixing can become a major challenge, especially if your team is small.
Automating the collection of assessment responses helps a lot, whether you manage it in-house, use repositories of completed questionnaires, or work with partners. Choosing the right questionnaires- industry standard or custom- and collection methods is important here. The goal is to get accurate, timely info
without overburdening your vendors or your team.
After you’ ve assessed your vendors and dealt with the risks, don’ t just stop there. Compliance is important, but it’ s not the whole story. You need to keep an eye on how your vendors are performing over time and whether any new risks pop up. A good way to do this is through clear, simple reporting that helps you understand your overall risk picture. For example, knowing which vendors carry the highest risks, what kind of risks are most common, and how these risks are trending over time can give you a big-picture view to make smarter decisions.
But risk isn’ t static. A vendor might seem safe one day and be in trouble the next. That’ s why continuous monitoring is so important. Instead of relying only on periodic assessments or waiting for vendors to notify you of problems, you want to watch for new security vulnerabilities, financial issues, or operational disruptions as they happen. This can include monitoring news, financial reports, or security alerts to catch red flags early before they turn into big problems.
Ongoing performance management is the next piece of the puzzle. Even a reliable vendor can hit bumps in the road, and promises to fix problems might lose the enthusiasm after the contract is signed. That’ s why you need to track vendor commitments and service levels closely. When this is done with scattered spreadsheets or unclear responsibilities, important deadlines and obligations can slip through the cracks, causing headaches and business interruptions.
Finally, when it’ s time to end a vendor