9 Essential Components of a Third-Party Risk Management Programme 

Managing third-party risk has become a board-level priority as organisations increasingly rely on third parties to deliver their products and services. A well-defined and documented Third-Party Risk Management (TPRM) programme ensures you can reap the benefits of utilising third parties without compromising security, compliance, or operational resilience.  

Below, you’ll find nine items we believe should be in every third-party risk management programme.

1 – Governance and Oversight

Establish a strong governance structure and clear accountability for third-party risk. This includes a well-defined TPRM (or equivalent) policy, executive sponsorship, and board oversight to set the “tone at the top.” Senior management should approve risk appetite levels and ensure necessary resources for the TPRM programme. Clear roles and responsibilities must be assigned so that everyone knows who manages which aspect of third-party risk. 

2 -Third-Party Register

You can’t manage what you don’t measure! Start by developing a complete inventory of all third-party vendors your organisation uses. For each vendor, determine the nature of their services, the data or systems they access and how critical they are to your operations. Categorise your third parties based on business criticality, focusing greater oversight on high-risk or critical third parties.

3 – Due Diligence and Risk Assessment

Perform thorough initial and ongoing due diligence on prospective (and existing) third parties to evaluate the controls they have in place. This assessment should cover areas such as information security, privacy, financial stability, regulatory compliance and prior track record. Common approaches include questionnaires, certifications (e.g. ISO 27001, Cyber Essentials Plus, etc.) and policy / procedure reviews.  

4 – Contracts and SLAs

Your contracts with third parties should set clear expectations around risk management, controls and compliance expectations. A robust contract is a powerful risk mitigation tool and should include specific provisions for data protection, confidentiality, and privacy requirements, as well as the vendor’s obligations in the event of a security incident. By embedding expectations around controls into contracts, you create enforceable commitments that hold third parties to the same standards you follow internally. 

5 – Ongoing Monitoring and Auditing

Managing third-party risk is not a one-and-done activity – continuous oversight is just as vital as the initial onboarding. Once a vendor is onboarded, institute ongoing monitoring to stay aware of any changes in their risk and control environment. This can include periodic security reviews or questionnaires, regular meetings to discuss performance, reviewing independent audit reports annually, and tracking key metrics (e.g. SLA compliance, incident history).  

6 – Fourth-Party Risk Management

It’s no longer enough to only worry about your own third parties – there have been several high profile breaches involving fourth parties recently. These downstream entities can introduce hidden vulnerabilities. For example, if one of your supplier’s critical suppliers suffers a major outage, how will this impact their service to your company? To address fourth-party risk, enhance your TPRM programme to include visibility and requirements for your vendors’ key suppliers.   

7 – Incident Response 

Despite best efforts, incidents involving third parties will happen. Having a well-defined incident response and contingency plan for third-party incidents is essential. Ensure that your organisation can react quickly if a vendor experiences an issue. For critical services, develop backup arrangements or alternative suppliers in case a third party fails. This might involve maintaining redundant providers or internal backup processes to keep operations running.  

8 – Termination and Offboarding

Most third-party relationships will end at some point. When a contract expires or is terminated, ensure you have a consistent approach and methodology outlined in your third-party risk management programme. A smooth offboarding process protects your organisation by closing any potential exposures – for example, suppliers may still have login credentials or access to company confidential data.   

9 – Continuous Improvement and Reporting

Like any approach to risk management, an effective TPRM programme should be continuously monitored and enhanced. Regularly review and update your third-party risk management policies, procedures, and tools to reflect lessons learned from incidents, and changes in business requirements. It’s also important to track programme performance and report on third-party risks to senior management and the board. Develop metrics and dashboards (such as number of high-risk vendors, outstanding issues, trend of vendor assessment scores, etc.) to communicate the risk landscape in business terms.  

To learn more about how CalQRisk can help you to manage your third party risk, contact us todayContact Us.