Third-party risk management (TPRM) is the process of finding, assessing, fixing, and monitoring third-party risks. That includes third parties like suppliers, vendors, service providers, and contractors. It also covers risks like business disruptions, unexpected costs, non-compliance, cyber threats, and more.
Today, more businesses have more third parties—and more third-party risks—to manage than ever before. But organizations are also investing more in TPRM than ever before. Yet, for some reason, most still struggle to make it work.
Many third party risk management programs are still new, inconsistent, or stuck in ‘box-checking’ mode.
Unfortunately, managing third-party relationships will also get more challenging as reliance on global resources grows. But don’t worry! Things are not as hopeless as they seem. Because successful TPRM is not only possible—it’s actually simple with the right resources and tools to help.
That’s why we put together this handy third party risk management guide. It covers everything there is to know about third party risk management, what it is, and why it’s important. It also provides some best practices your organization can use for even more insights and value. It could even set your company up for a more modern TPRM program with an automated, centralized tool, if you like that kind of thing.
But first, full transparency mode.
We’re not financial or procurement people. We’re information security people.
So, even though it explores TPRM as a whole, this guide also focuses on information security. With it, teams can shape the processes, workflows, and policies for third party security risk management (TPSRM).
We wrote this guide for security professionals on the frontlines of managing third party security risk. But we hope it can help anyone on the path to successful TPRM. But even if you never use it, at the very least, we wish you an enjoyable read. 💚
Ready? Set? Third-party risk management! 🏁
What is Third Party Risk Management?
Third party risk management (TPRM) is the process of finding, evaluating, and managing risks from outside parties. Put simply, it’s how organizations protect themselves from third party risks.
While the specific workflows and processes might vary by organization, most successful TPRM programs share some common activities.
Key third party risk management activities include the following:
- Identification: Pinpointing all the third parties in an ecosystem.
- Evaluation and selection: Conducting an initial risk assessment and identifying low-risk vendors.
- Risk assessment: Inspecting potential risks closely before onboarding.
- Risk remediation: Implementing remediation measures.
- Contracting and procurement: Formalizing the relationship with contracts and service level agreements (SLAs).
- Reporting and record-keeping: Documenting the entire process for transparency.
- Ongoing monitoring: Continuously tracking third party security posture and risk exposure.
- Off-boarding: Disengaging securely to prevent lingering risk.
Together, these activities make up almost every successful TPRM program. Although listed in order, these steps will often overlap and interlink throughout the process. The first goal is to find third party risks before they cause damage. Then, it’s to put protections in place to reduce the impact if they do.
Most companies today depend on third parties. Some have dozens, others have hundreds, and some have tens of thousands.
Now, TPRM is taking center stage in 2025.
But here’s the catch: Most companies don’t actually know all the third parties they rely on. If procurement, finance, IT, or any department introduces third parties without a central system, it 100% creates hidden risks.
Despite these concerns, most teams still treat TPRM like a box-checking compliance exercise. Unfortunately, reviewing vendors once a year and assuming they’re covered is a big mistake. HUGE. Because third party risk isn’t static, so why would your TPRM program be?
Here’s our take: The companies that succeed will be the ones that can see risks coming and address them early.
But they’ll also be the ones that can build resilience directly into third party relationships.
TL;DR: TPRM is about making smarter, safer business decisions without the impossible task of avoiding third party risk altogether.
What Are Third Parties?
Third parties are the external entities or other businesses–like vendors, suppliers, service providers, contractors, and partners–that organizations rely on for products, services, or support.
Some third parties are obvious, like the company that supplies raw materials or the cloud provider that stores company data. Others, like software tools used by a single department or subcontractors hired by an approved vendor, can fly under the radar. In information technology (IT), this is called “shadow IT.”
Common third parties include the following:
- Suppliers: Provide raw materials or components to create products.
- Vendors: Sell finished products or services.
- Service Providers: Offer specialized services to support operations.
- Contractors: Perform specific tasks or projects.
- Partners: Collaborate to achieve shared goals.
The exact number of third parties in an organization’s ecosystem will depend on factors like size, region, industry, and more. But more important than the number itself is the fact that many businesses don’t actually know who their third parties are–which means they can’t assess the risks they introduce. With anywhere between 11-40% of third parties considered ‘high-risk,’ that’s a whole ‘lotta risk to simply pretend it doesn’t exist.
Whether one of 30 or 3,000, every vendor introduces some level of risk. Remember: what matters more than the exact number of third parties you have is the amount of visibility you have into each of them.
What is Third Party Risk?
Third party risk is the potential for an organization to suffer negative consequences due to its professional connection with other businesses and entities.
Today, every partnership is a calculated risk–a bet your company is willing to take that its third parties will follow through with their end of the deal. But if that trust is misplaced, the consequences can be serious.
Although non-exhaustive, the following list covers top third party risk incidents reported by executive risk committee members.
Key third party risk categories include the following:
- Operational risk: Disruptions to business processes.
- Financial risk: Loss of revenue, unexpected expenses, or financial instability.
- Compliance and legal risk: Regulatory violations or legal consequences.
- Reputational risk: Damage to brand reputation due to unethical behavior, data breaches, or poor-quality products.
- Cybersecurity risk: Security vulnerabilities introduced by systems, software, or access permissions.
Here’s the thing: third party risks aren’t just theoretical.
They happen all the time, and no organization is immune. The more third parties your business relies on, the more risk exposure it takes on. That’s just how it is. 🤷🏽
Today, understanding third party risk isn’t just about knowing the different risk categories. It’s about recognizing that every business decision carries potential consequences that can look very different depending on the circumstances. When third parties get involved, however, predicting–and remediating–those risks becomes much more complex.
Examples of Third Party Risk
A closer look at the types of third party risk and some examples for each can help define the differences (and similarities) between them.
Third Party Operational Risk
Operational risk is the potential for business disruptions caused by third party failures. It’s the risk that one of your third parties will do something that prevents your business from running as usual.
Examples of third party operational risk include the following:
- Concentration risk: Over-reliance on a single or small group of third parties.
- Supply chain disruptions: Third party delays or failures that halt production lines.
- Service delivery failures: Inability of third parties to meet agreed-upon standards.
Unfortunately, the more dependent your company becomes on third parties, the greater the risk of cascading failures caused by a single weak link in the supply chain becomes. And with 73% of organizations suffering at least one significant operational disruption caused by a third party in the last three years, it seems operational risks are not only alarmingly common, but the impacts are severe.
The truth is, while no business can predict every third party failure, you can prepare. In fact, it’s quite literally the ONLY thing you can do.
Our advice? Don’t just trust your vendors to deliver–plan for when they don’t. Diversify suppliers, track vendor performance, and build contingency plans. Or, don’t, and stay one third party failure away from total disaster.
🌏 Real-world example of third party operational risk:
The infamous CrowdStrike incident of 2024 had devastating impacts for multiple major global enterprise systems, including Delta Air Lines, which canceled over 2,200 flights and lost about $500 million over the five-day outage.
Third Party Financial Risk
Financial risk is the potential for revenue loss, unexpected costs, or financial instability caused by third party failures. It’s the risk that a third party might go bankrupt, raise prices, or default on a contract, leaving your business scrambling to foot the bill.
Examples of third party financial risk include the following:
- Bankruptcy: A sudden shutdown in third party operations.
- Cost overruns: Third parties exceeding budgeted expenses.
- Payment defaults: Failure to pay debts by third parties.
Unfortunately, third party financial instability happens more often than you might expect. But tracking vendor health also isn’t easy. Many companies assume their third parties are financially stable, only to be blindsided. And in industries with tight margins, even a small financial disruption can have ripple effects.
If it isn’t clear, vetting third parties for financial stability is just as important as assessing their security or compliance posture. Businesses that don’t evaluate financial risk early often don’t even realize they’re in danger until they’re stuck paying the price.
🌏 Real-world example of third party financial risk:
When Armstrong Flooring and Revlon filed for bankruptcy in 2022, the sudden collapse forced business partners to scramble for alternative suppliers and absorb unexpected costs.
Third Party Compliance and Legal Risk
Compliance and legal risk is the potential for fines, lawsuits, or regulatory action due to a third party’s failure to follow laws, contracts, or industry standards. It’s the risk that legal and financial consequences will fall to your business, even if the violation is out of your hands.
Examples of third party compliance and legal risk include the following:
- Regulatory violations: A third party’s failure to comply with laws or industry standards.
- Contractual breaches: A third party’s failure to meet contractual obligations.
- ESG violations: A third party’s environmental, social, and governance failures leading to legal consequences.
Compliance and legal risk is growing quickly as regulators tighten rules across industries. From data privacy and anti-corruption laws to environmental, social, and governance (ESG) requirements, today’s companies are required to not only follow compliance guidelines, report violations, and take action when risks emerge–but make sure their third parties do, too.
Now, failing to monitor third party risk isn’t just irresponsible. It’s legally indefensible.
And quite honestly, maybe it should be. Because regulators don’t care who made the mistake, just that it was made at all. So, if a third party is non-compliant, expect your business to be liable, too.
🌏Real-world example of third party compliance and legal risk:
The Montana Supreme Court ruled that failing to regulate greenhouse gas emissions was unconstitutional in 2023, reinforcing the legal risks companies face when third parties don’t align with environmental and sustainability goals.
Third Party Reputational Risk
Reputational risk is the potential for damage to a company’s brand, trust, and credibility due to third party failures, scandals, or unethical practices. It’s the risk that a third party will do something unsightly that makes your business look bad, too.
Examples of third party reputational risk include the following:
- Unethical practices: Third parties engaging in child labor or human rights violations.
- Negative publicity: Third party scandals causing public backlash.
- Poor quality control: Low-quality third party products reflect badly on your brand.
Third parties that make headlines for the wrong reasons are often followed by the names of companies with which they do business. In fact, 75% or companies have suffered reputational harm due to third party failures. Spoiler alert: even if the issue happens outside your organization, the rest of the world still expects you to take some responsibility.
Today, a vendor caught using child labor, engaging in sustainability violations, or producing subpar products doesn’t just hurt itself–it tarnishes the reputation of every other company in its supply chain. That’s because today’s consumers (and stakeholders!) demand transparency. They want to know where their products come from, how businesses treat workers, and whether companies are living up to their ethical and environmental commitments.
Look, failing to vet third party ethics and quality standards isn’t just a business risk, it’s a brand risk. Now, even companies that spent years building trust can lose it–and all the long-term success that comes with it–overnight.
🌏 Real-world example of third party reputational risk:
Major tech and auto companies faced lawsuits and consumer outrage after reports exposed the use of child labor in cobalt mining operations in the Democratic Republic of Congo.
Third Party Cybersecurity Risk
Cybersecurity risk is the potential for data breaches, malware, and unauthorized access due to third party security vulnerabilities. It’s the risk that weak, third party cybersecurity practices will expose your company to threats, even if it has strong security controls in place.
Examples of third party cybersecurity risk include the following:
- Data breaches: Weak third party security exposing sensitive company or customer data.
- Malware infections: third party software introducing malicious code into your network.
- Unauthorized access: Poor third party access controls.
Because third parties often have access to company networks, sensitive data, and critical systems, they are prime targets for cyberattacks. A vendor’s weak password policy, outdated software, or poor access controls could easily become your company’s next data breach. All it takes is one determined hacker and one weak link and BOOM! Vulnerability exploited, attack vector bagged.
Now that third party security incidents are on the rise, nearly two-thirds of TPRM leaders say cybersecurity is their top third party concern. Yet, a surprising number of businesses don’t fully vet or monitor third party security practices, even though it’s leadership’s top concern.
Ideally, third parties should have strong encryption, multi-factor authentication, and strict access in controls at the very least. But many just don’t. Our recommendation? Take a page from the notebooks of the consumers holding YOUR company accountable: it’s high time to demand proof over promises.
🌏 Real-world example of a third party cybersecurity risk:
The MOVEit file transfer software breach in 2023 affected hundreds of organizations across sectors when attackers exploited a vulnerability in third party software that exposed millions of sensitive records.
TPRM vs. Other Types of Risk Management
Third party risk management is a broad discipline that covers every third party risk with specialized areas of focus for addressing distinct threats. Ultimately, understanding the differences between these types of third party risk management will be key to building a risk management strategy that isn’t full of blind spots.
A quick introduction to some of the most common types can help explain how they differ and where they overlap.
What is Third Party Security Risk Management?
Third party security risk management (TPSRM) is an internal process that focuses specifically on identifying, assessing, and mitigating the cybersecurity and information security risks linked to third parties.
Most businesses today depend on third parties for cloud services, software integrations, and infrastructure support, all of which introduce security risks. But the biggest breaches today? They start with weak links in third party networks, not direct attacks on companies. In fact, 98% of organizations are affiliated with at least one third party that has experienced a breach, with third party attacks responsible for 29% of all breaches.
What is Vendor Risk Management?
Vendor risk management (VRM) is the process of identifying, assessing, and mitigating the risks associated with the vendors providing products or services directly to an organization.
Making sure vendors meet requirements before and after they’re onboarded is essential, but it’s also something most organizations simply don’t do. But, unlike TPSRM, this type of third party risk management isn’t just about security–it’s about monitoring performance, reliability, and long-term stability, too.
What is Supply Chain Risk Management?
Supply chain risk management (SCRM) is the process of identifying, assessing, and mitigating risks that could disrupt supply chains in logistics, manufacturing, or IT and cybersecurity.
Traditional SCRM focuses on physical supply chains to make sure raw materials, components, and products move smoothly from suppliers to customers. But cyber supply chain risk management (C-SCRM) has become equally critical for addressing vulnerabilities in software, hardware, and cloud services that businesses rely on.
From compromised IT environments to third party software vulnerabilities, cyber supply chain risks introduce opportunities for disruption at every stage, from development and packaging to storage, transport, deployment, and use. Now, it seems modern SCRM is no longer important only for organizations with complex supplier networks–it’s non-negotiable for everyone.
Supply chain disruptions will become harder to predict and more expensive to fix. A TPRM program that considers upstream and downstream risks at once will be critical for managing risk along the entire chain.
💡Tip: Read NIST’s Best Practices in Cyber Supply Chain Risk Management for more insight.
What is Fourth Party Risk Management?
Also called Nth-party risk management, fourth-party risk management is the process of identifying, assessing, and mitigating risks posed by a third party’s third parties.
Most companies today assess third parties for risks, yet, only 39% of companies say their third party risk mitigation is ‘highly effective.’
But fourth parties can introduce hidden risks even harder to detect. Yet, very few organizations assess fourth-party risks, but even more don’t monitor them at all. Given how supply chain attacks like SolarWinds have played out, ignoring fourth-party risks simply isn’t a good look. Without visibility into your vendor’s vendors, you’re more than likely already exposing your business to risks you don’t even know exist.
Why is Third Party Risk Management Important?
Third party risk management is more important as more businesses work with more third parties and manage more third party risk than ever before.
But if third parties play an important role in your daily operations (hint: they probably do), then you already know that a failure by one can send shockwaves through your entire ecosystem. With 82% of compliance leaders facing consequences from a third party incident, it seems most businesses have felt the direct impact of third party risk at some point over the last few years.
Yet, most companies don’t have enough visibility into their third party relationships.
In fact, even businesses that invest heavily in securing their own systems often lack the infrastructure to enforce the same standards for every single third party they work with. At large companies, the vendor onboarding risk assessment process alone can take up to six months to complete. So by the time contracts are ready to sign, the entire risk landscape has already changed.
Third party risk is dynamic, which means a third party that was low-risk yesterday might be high-risk today, thanks to new security vulnerabilities or regulatory changes.
Without TPRM, businesses are essentially handing over the keys to critical operations without knowing if their third parties can drive.
What is the Purpose of Third Party Risk Management?
The purpose of third party risk management is to protect businesses from potential third party failures before they turn into disasters. It’s about identifying risks early, addressing problems quickly, and keeping threats in check over time.
Goals of TPRM include the following:
- Risk identification and assessment: Identifying and evaluating potential third party risks before they escalate.
- Risk mitigation: Putting controls in place to reduce third party vulnerabilities.
- Compliance assurance: Ensuring third parties follow industry regulations and contractual obligations.
- Continuous monitoring: Tracking third party performance over time.
Without a structured TPRM approach, companies are left reacting to third party risks instead of preventing them ahead of time. Because even though these risks can create direct consequences for your organization, they also originate from outside its walls, giving you next to zero control.
But third party risk also isn’t going anywhere any time soon, so why not learn to embrace it? Instead of flying by the seat of your pants, consider how a TPRM program might give your organization just enough structure to successfully transform its risk insights into strategic advantages.
Benefits of Third Party Risk Management
Clear Oversight
A successful TPRM program can give your business real-time visibility into its third party relationships, including who they work with, what access those third parties have, and where potential risks might hide.
But let’s be real: if you’re still tracking third party risks in spreadsheets and email chains, you’re already behind. When risks go unnoticed, security gaps widen, and by the time a problem finally surfaces, you get to skip the “Warning!” part and jump straight into crisis mode.
💡Tip: Catch risks early with a centralized TPRM program that connects the dots before they become red flags.
Risk Reduction
TPRM programs can help your business prevent disruptions before, during, and after a third party relationship–but it only works if you do it every single time. Like most business processes, TPRM is not a set-it-and-forget-it function. It needs to be repeated over and over again for it to deliver any worth.
Unfortunately, most companies today simply assess vendors before onboarding, and then stop paying attention. Big mistake. HUGE. Because TPRM isn’t just about checking boxes–it’s about actively reducing risk at every stage of the third party relationship. That means vetting vendors upfront, monitoring for changes, and having a plan for when things go wrong.
Regulatory Compliance
Third party risk management programs can help your company hold its third parties accountable with the right laws and regulations. Regulators don’t just expect your business to follow the rules in 2025, they expect your third parties to uphold the same standards, too.
But tracking third party compliance manually is a nightmare, especially if you’re juggling multiple overlapping requirements. The best TPRM programs will automate compliance tracking, flag potential violations, and help you make sure third parties meet contractual and legal obligations before regulators start asking questions.
💡Tip: “We didn’t know” just won’t cut it in today’s regulatory landscape.
Third Party Risk Management Resources
Risk management resources are the regulations, frameworks, and standards organizations can use to design, build, implement, and operate a successful program.
Fortunately, because TPRM has such a long and sordid history, there are now plenty of well-established guidelines that can help make the process more straightforward. From strict regulatory requirements to widely adopted frameworks, most businesses don’t have to start from scratch when it comes to TPRM.
But knowing which resources to use–and how to integrate them into a practical risk strategy–will be key.
TPRM Regulations
Regulatory bodies worldwide are cracking down on third party risk. Now, on top of managing their own security and compliance postures, businesses are expected to make sure third parties follow suit.
Key global TPRM regulations include the following:
Key U.S. TPRM regulations include the following:
- Gramm-Leach-Bliley Act (GLBA): Requires financial institutions to implement security controls for third parties handling customer financial data.
- New York Cybersecurity Regulation (23 NYCRR Part 500): Mandates financial institutions in New York State assess third party cybersecurity risk and create incident response plans.
Because these (and other) regulations often overlap, many organizations must comply with multiple at once. A higher education institution handling student loans and healthcare data, for example, needs to comply with FERPA, GLBA, and HIPAA. But just because a third party complies with multiple regulations on paper, doesn’t always mean they aren’t risky in reality.
Some businesses might pass an audit one year, only to experience a massive security incident the next. Today, true TPRM success will mean looking beyond labels like ‘compliant’ and ‘low-risk’ and into all the places third parties might hide their deepest, darkest risks.
Note: Check out our 2025 GLBA guide for financial institutions if you’re looking for recent updates on this particular requirement.
TPRM Standards, Frameworks, and Certifications
Third party risk management frameworks, standards, and certifications each play a similar but slightly different role. Because TPRM is about having a structured, repeatable process for separating risky third parties from the rest of the pack, these resources can be priceless for the companies that know how to use them.
Standards vs. frameworks vs. certifications:
- TPRM standards: Define security best practices for organizations.
- TPRM frameworks: Outline structured, repeatable processes for managing third party risk.
- TPRM certifications: Prove an organization and its third parties meet recognized security and compliance benchmarks.
This information might not be useful at trivia night, but it sure can help your company figure out which TPRM resources to use!
TPRM Frameworks
Third party risk management frameworks provide structured ways for companies to collect security data, standardize assessments, and track compliance. They’re like the go-to playbooks for assessing third party risks, offering the right mix of structure and flexibility so businesses can adapt without reinventing the wheel.
Key TPRM frameworks include the following:
- HECVAT (Higher Education Community Vendor Assessment Toolkit): Helps higher education institutions assess third party security with a standardized approach.
- K-12CVAT (K-12 Cloud Security Vendor Assessment Toolkit): Similar to HECVAT, but for the needs of K-12 organizations.
- SIG (Standardized Information Gathering Questionnaire): Offers customizable security assessments for organizations of all sizes.
- CAIQ (Consensus Assessments Initiative Questionnaire): A third party security assessment frameworks for cloud service providers from the Cloud Security Alliance.
- VSAQ (Vendor Security Assessment Questionnaire): Helps vendors self-assess and share their security posture transparently.
The right framework for your business will depend on its industry, risk profile, and regulatory requirements. Typically, higher education institutions will use HECVAT to assess cloud vendors, while other organizations might prefer SIG for its in-depth risk assessment capabilities. If speed and automation are priorities, VSAQ could be the right fit.
💡Tip: No matter your approach, consistency is key. Without a structured framework, third party risk assessments are nothing but a guessing game.
TPRM Certifications
Third party risk management certifications help organizations verify that third-parties meet specific security and compliance standards.
- SOC 2 (Service Organization Control 2): Defines data security, availability, and confidentiality standards for third parties handling sensitive information.
- FedRAMP & StateRAMP: Standardized security assessments for cloud vendors working with the federal and state governments.
- CMMC (Cybersecurity Maturity Model Certification): A tiered security framework required for defense contractors and their subcontractors.
Certifications are like a trust signal, helping organizations quickly determine whether a third party meets security and compliance requirements. If your company operates in the cloud, look for vendors with SOC 2 or FedRAMP certifications. Selling to the Department of Defense? You’ll need CMMC. Handling customer data? A ISO 27001-certified service provider is the best bet.
However, a vendor’s certification doesn’t replace your need to conduct a thorough assessment. It’s common practice to ask a vendor to fill out a security questionnaire regardless of if they have a SOC-2 certification—particularly for high-risk vendors where more diligence can be employed.
💡Tip: Certifications shouldn’t replace due diligence, but they can fast-track assessments and reduce the burden of proving compliance from scratch.
What is Third Party Risk Management Software?
TPRM software is a tool that centralizes third party data, automates assessments, and keeps risk scores up to date so companies can see exactly which third parties meet security standards and which pose a threat. Because tracking third party risk shouldn’t feel like detective work. 🕵️
But when information is scattered across teams, security assessments get stuck in email threats, and compliance documents live in a dozen different places, it’s nearly impossible to see the needle from the haystack. And by the time you piece everything together, the risk landscape has already changed.
With Isora GRC, however, companies can cut the busywork out of TPRM. It automates assessments, centralizes third party data, and keeps risk scores up to date so you’re never working with outdated information. Instead of drowning in spreadsheets, you get a clear, real-time view of your entire third party ecosystem, without the manual workload.
Here’s how a tool like Isora can help transform TPRM:
First, it brings everything together. Right now, third party data is probably scattered across your teams–procurement has contracts, security has assessment results, IT manages access, and finance tracks invoices. Isora GRC links it all in one place. Vendor profiles, compliance records, past risk assessments–it’s all there. Searchable, organized, and instantly accessible.
Then, it cuts out the busywork. Sending security questionnaires one by one? Chasing vendors for responses? Manually calculating risk scores? Not anymore. Isora GRC automates the entire process–sending assessments, collecting responses, and generating risk insights in real time. No more waiting weeks for updates when you get answers instantly instead.
Most importantly, it keeps you ahead of risk. A third party that looked fine six months ago might be struggling with issues today. With Isora GRC, your business can continuously monitor vendor risk levels and set automatic alerts for changes so you can react before a tiny problem becomes a major risk.
And it makes sure nothing falls through the cracks. Risk programs fall apart when tasks get forgotten and responsibilities aren’t clear. In Isora, teams can assign follow-ups, track approvals, and keep assessments moving. No more lost emails or overdue reviews. Just a straightforward, structured workflow that keeps your TPRM program running smoothly.
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The Future of Third Party Risk Management
TPRM is evolving quickly, but what the future promises is even faster, smarter, and more automated. As third party ecosystems grow and regulations tighten, AI is transforming business as we know it.
Soon, companies that rely on outdated risk reviews and static assessments won’t just be struggling to keep up, they’ll be actively introducing risks into their own ecosystem.
Globalization and Digitization
Third party networks aren’t just bigger, they’re more interconnected and unpredictable. Most businesses now rely on a complex web of third-, fourth-, and fifth-party providers spanning multiple countries, each operating under different legal and security frameworks. Keeping track of who’s introducing risk (and where) is no small feat. At the same time, digitization has made annual risk reviews obsolete. Cyber threats, regulatory changes, and business disruptions happen in real time, not on a schedule.
Now, organizations need systems that can monitor third parties continuously, flag new risks immediately, and provide actionable insights and recommendations right away.
Regulatory Scrutiny
Governments and industry regulators are raising the stakes on third party accountability. Security and compliance are officially no longer box-checking exercises. Instead, businesses must be able to demonstrate active oversight, enforce controls, and provide audit-ready documentation at the drop of a hat.
The companies that can build strong, transparent, future-proof risk management programs won’t just avoid penalties, they’ll be seen as more trustworthy and reliable business partners.
Artificial Intelligence (AI)
AI isn’t the future of TPRM; it’s already here. Machine learning models can analyze vendor behavior, detect anomalies, and identify high-risk patterns long before manual reviews would catch them. Rather than reacting to incidents after they happen, AI-powered tools help businesses predict risk shifts and act before they escalate.
The result? Faster decisions, fewer surprises, and a more resilient approach to third party risk overall.
Third Party Risk Management FAQs
What is a risk-based approach to third party management?
A risk-based approach to TPRM prioritizes high-risk third parties–those with access to sensitive data, critical systems, or regulated environments–while applying lighter assessments to lower-risk vendors. Instead of treating every third party the same, this method focuses resources where they matter most.
How do you implement a third party risk management program?
A successful TPRM program starts with clear policies, well-defined risk criteria, and automation.
Implement TPRM with the following actions:
- Define risk tiers: Establish criteria to categorize third parties by criticality, access levels, and regulatory exposure.
- Standardize assessments: Create repeatable processes that can scale as ecosystems grow.
- Automate risk monitoring: Use tools to track security, compliance, and financial health in real time.
- Enforce risk controls: Build security requirements into contracts and SLAs.
- Continuously reassess: Monitor for shifts in risk posture, breaches, or compliance violations.
With the right foundation, TPRM can become an integrated part of your business operations, rather than a reactive process.
What laws and regulations require third party risk management?
Organizations across industries must comply with multiple overlapping TPRM regulations covering data privacy, cybersecurity, and financial security.
The most important TPRM regulations include the following:
- Global: GDPR for data protection in the EU, ISO 27001 for global security management, and SOC 2 for vendor security best practices.
- American: NIST 800-53 and CSF for federal cybersecurity controls, PCI-DSS for payment security, HIPAA for healthcare data privacy, GLBA for financial data protection, and CMMC for defense supply chain security.
Failure to comply can lead to hefty fines, legal penalties, and reputational damage. Today, organizations must make sure third parties meet applicable regulations, not just their own internal policies.
How often should organizations assess third party risks?
Ideally, third party assessments should be risk-based and ongoing. The higher the risk, the more frequent the review cycle.
- High-risk third parties: Quarterly or biannually
- Medium-risk third parties: Annually
- Low-risk third parties: Every 1-2 years
Remember: risk isn’t static. Real-time monitoring helps companies detect risks before the next scheduled review.
Who owns TPRM?
Third party risk management is a cross-functional effort that requires collaboration across multiple teams.
- Security and IT teams: Evaluate technical risks, system access, and data security.
- Compliance and legal teams: Ensure third parties meet regulatory requirements and contractual obligations.
- Procurement and finance teams: Assess vendor stability, financial health, and contract risks.
- Executive leadership: Approve final risk acceptance decisions for high-risk vendors.
Without clearly defined roles, vendor oversight can slip through the cracks, increasing the likelihood of security and compliance risks.
What’s the difference between third party and fourth party risk management?
Third party risk management focuses on direct vendor relationships to make sure suppliers, service providers, and contractors can meet security and compliance standards.
Fourth-party risk management (FPRM) extends to third parties’ subcontractors and vendors. Because organizations don’t directly control fourth parties, these risks are harder to track–but they still impact security.
What’s the difference between TPRM and GRC?
Governance, Risk, and Compliance (GRC) covers enterprise-wide risk management, regulatory compliance, and governance practices. third party risk management, on the other hand, is a specialized function within GRC that focuses specifically on third party security, compliance, and risk assessments.
Companies with large third party ecosystems need dedicated TPRM programs that integrate into their broader GRC strategy to manage supplier security and meet regulatory requirements.
How can organizations improve their TPRM programs?
To strengthen third party risk management, companies must move beyond one-time assessments and manual processes.
Key TPRM improvements include the following:
- Prioritize high-risk vendors: Implement a risk-based approach for deeper security reviews where they matter most.
- Automate risk assessments: Use security questionnaires, real-time monitoring, and AI-driven analytics to track risks at scale.
- Centralize vendor data: Store compliance documents, risk scores, and audit history in a searchable, accessible system.
- Integrate TPRM into procurement and legal workflows: Make sure third party risk management starts before contracts are signed.
As vendor ecosystems grow, companies that automate, standardize, and continuously monitor third party risk will make faster, smarter risk decisions.
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