Third-Party Risk Management: Challenges and Solutions

What is Third-Party Risk Management:

Third-party risk management is a component of a wider Enterprise Risk Management Program that identifies, assesses, and mitigates risks that arise from the use of third-parties. Every organization utilizes some form of third-party for day-to-day operations whether that is Microsoft for computers, security technologies to protect networks and endpoints, suppliers, contracting vendors, and so on.

Each vendor that an organization utilizes expands the attack surface adversaries can take advantage of, and it is up to the individual organization to properly evaluate, monitor, and act on that expanded attack surface. Now, not every vendor will create an “End of the World” level of risk, but it is important to have an overall view of the third-party ecosystem to fully understand the exposure an organization faces.

A third-party risk management program comes with a number of challenges security and compliance teams must face, but there are of course best practices that can be followed.

Why Third-Party Risk Management Programs are Important

Breaches caused by third-party vendors are on the rise. According to a Third-Party Risk Management report by Whistic, 66% of their respondents stated they experienced a breach in 2024 and 88% of those breaches were caused by a breach within their supply chain first. Without proper due diligence in third-party risk management arena, blind spots develop which can exponentially increase the attack surface of an organization, and it will be completely unknown to security and executive staff.

It is no longer a matter of whether a breach will happen, but rather a matter of when. It is important to note that effective third-party risk management does not eliminate the risk entirely, however it can provide you with an accurate map of your ecosystem to appropriately implement mitigation or acceptance strategies to ensure risk remains at acceptable levels. In order to build an effective program, there are numerous challenges that will need to be addressed.

The Challenges of Third-Party Risk Management

An effective third-party risk management program is not built overnight, and along the journey of building the program, numerous challenges will have to be faced. Some of the major challenges that will have to be faced are the following:

• Understanding the organization’s vendor ecosystem: Gaining an understanding of the scope of your vendor ecosystem can be challenging as third-parties can be found in almost all aspects of an organization. From the cloud vendors used to store data, to the vendors who supply your organization with hardware or office supplies, to the vendor who maintains the vending machine in the breakroom, getting a clear picture of all of the vendors being used can be quite a daunting task. This problem is exacerbated as this ecosystem is continuously shifting by adding new vendors and removing old vendors.
• Assessing the vendor ecosystem: After gaining an insight into what the vendor ecosystem looks like, now it is time to assess them for their risk. There are different assessments out there (SIG, SIG LITE, CAIQ, etc.), but these are long tedious assessments with hundreds of questions. Remember, not all vendors expose the same level of risk for an organization, so not all vendors technically need to be assessed the same. Creating an effective assessment strategy should be a collaborative effort between security and compliance to ensure that vendors are assessed efficiently while also meeting the security and compliance needs of the organization.
• Continuous monitoring of vendors: Even after the vendors are assessed, an effective third-party risk management program continues to monitor vendors for changes in their security posture. The original assessment is just a point in time reflection of security capabilities. Vendors could switch a security tool and implement it incorrectly, leadership could change, practices and policies could also change over time. It is up to the contracting organization to continuously monitor their vendor risk exposure and adapt as it changes post the original security assessments.

All of these challenges can make it seem like creating an effective program is out of reach, however there are numerous best practices that can assist an organization with launching and growing a program. Remember, third-party risk management is not a destination, it is a journey that will take time to mature, much like other risk management practices.

Best Practices for Third-Party Risk Management

The best way to begin to build out a third-party risk management program is to follow one simple rule, do not recreate the wheel. Third-party risk management programs have been developed for numerous organizations of all verticals and complexities, which means there are definitely practices that will fit what is needed for the blossoming program. Some of these best practices are listed below and are tied to the challenges that were mentioned in the previous section.

• Inventory, inventory and inventory: The first step is to gain an understanding of what vendors are currently being utilized and develop a process to add/remove vendors as needed. To do this effectively, the following steps should be taken:
  • Meet with relevant business stakeholders to see if they have an inventory of applications or vendors they are utilizing for their department. Take into consideration any contract management that is done for accuracy and create a vendor tracker to centralize an inventory for the entire enterprise.
  • Create a vendor onboarding process that includes an intake form so business units can provide relevant information to evaluate the level of risk of the vendor.
  • Create a risk tiering formula that allows the organization to categorize vendors by the level of risk they pose. This can be based on several factors but some common ones are amount of data shared, system access, dependency to the business, and many others.

• Assess vendors based on risk: Assessments are not a one size fits all and sending large assessments to vendors that pose little to negligible risk causes delays in onboarding and friction throughout the organization. To streamline this process, follow these steps:
  • Develop policies and procedures for assessments that address who sends the assessment, who reviews the assessment, the timeframe for the assessment, due dates, required evidence, and other needed characteristics.
  • Using the newly created risk tiers for vendors, deem what is considered critical for vendors to have based on the different tiers. Along with this, decide what needs to be essential for every vendor (A security baseline) regardless of their tier. An example of this could be all vendors are required to have an annual tabletop exercise for their production systems, but the most critical and riskiest vendors must do testing with their third-party vendors considered. A conversation can also be had to discuss if there are any exceptions to these rules such as vendors who do not need to be assessed at all.
  • Utilize premade assessments like the SIG and CAIQ, to develop assessments that cover the required criteria from above. A good rule of thumb to follow will be the more critical and riskier the vendor is, the more comprehensive the assessment should be.
  • Additional considerations should be made for things like emerging vulnerabilities, potential breaches, and other niche use cases that could arise during the vendor lifecycle.

• Continue to monitor vendors: The assessment should only be the first step in managing the risk of the third-party ecosystem. Post the assessment, vendors should be monitored for changes in their risk as controls change, breaches happen, news stories release, financial difficulties occur, and many other events occur. To assist with this, the following steps should be taken:
  • Subscribe to newsletters and news sources to catch relevant information as it comes out to make informed decisions on the risk of the vendor ecosystem.
  • Invest in a vendor monitoring solution that specifies in continuous monitoring and can alert when there is a change that should signify a follow up or conversation with a vendor.
  • Use current threat intelligence feeds to determine if vendors being utilized are vulnerable to zero days, exploits, and other vectors that could put the organization at a higher risk.

One final best practice that can be utilized is to invest in a third-party risk management platform that can centralize all third-party risk management practices under one roof to ensure simplified tracking, assessments, and monitoring of third-parties.

How K logix can help

At K logix, we understand the importance of having an effective third-party risk management program and have experience in solving its many challenges for a wide variety of customers in every vertical. Through services like our complimentary Third-Party Risk Management Questionnaire Review and our Third-Party Risk Management Program Review, third-party experts can provide organizations with actionable recommendations that provide the visibility required to reduce third-party risk in their environments.