How to Build a Third-Party Risk Management Framework

March 24, 2022 | By IANS Faculty

As third-party cyberattacks continue to rise, so too does the risk of exposure or loss resulting from compromises to systems, networks and data. Third-party risk management should be a priority, however, most organizations are only doing the basics and must develop efficient and scalable processes for managing third-party risks. 

As your business onboards new vendors to drive operational efficiencies, take steps to keep your organization secure in all functional areas with a solid third-party risk management framework.  

This piece provides guidance and a process to build a comprehensive third-party risk management framework to protect your organization from vulnerabilities and threats third parties may present. 

What Is a Third-Party Risk Management Framework?   

A third-party risk management framework is a set of guidelines for an organizational process to classify, remove and minimize risks from vendors, partners, contractors and suppliers. The framework helps identify third-party risk and threat opportunities, and allows organizations to effectively allocate and use resources for risk mitigation.   

The original risk management framework template was developed by NIST to help protect U.S. government information systems from threats and vulnerabilities. The newer  NIST Cybersecurity Framework consists of standards, guidelines and best practices specifically tailored to manage your cybersecurity risk. 

In addition to the NIST frameworks, ISO also has a third-party risk management framework that can be helpful for the third-party risk management assessment process. These frameworks are standards that help organizations identify threats, assess specific vulnerabilities to determine the risk involved, seek out ways to mitigate the risk and adopt risk reduction efforts according to organizational strategy. 

Third-Party Risk Management Framework Best Practices 

When building a third-party risk management framework, best practice is to divide the process into two initial stages:  

Preliminary setup of the framework requires: 

  • Due diligence processes for identification and risk classification  
  • Review and approval processes and getting stakeholders involved 
  • Execution processes to catch and manage any issues 

Ongoing monitoring and updates to the framework include: 

  • Due diligence of existing third parties, including fourth parties 
  • On-boarding and termination of third parties if needed 
  • Contract and issue management and reporting  

Third-Party Risk Management Framework Challenges 

While the NIST third-party management framework is seen by many as an industry best practice, many of the organizations that adopt the framework find comprehensive adoption and implementation is a larger investment of both time and expense than originally anticipated. Adequate resource allocation and buy-in from both risk owners and stakeholders is critical to a successful third-party risk management framework and ongoing program.   

It is important to expand the framework scope beyond your information security group to include the entire organization to provide protection from the following risk types: 

  • Operational:  Disruption to the business areas and operations  
  • Legal, regulatory and compliance:  Impact to compliance with government regulation or legal agreements  
  • Reputational: Poor reviews, negative press or damage to public opinion   
  • Financial:  Impact to revenue, finances or organizational assets  
  • Strategic:  Failure to meet business plans and objectives  

READ: Risk Management Terminology for InfoSec Teams 

Another challenge for organizations is failure to have visibility into vendor and supplier practices that add to third-party risk, including: 

  • Resiliency: No assessment of business continuity or incident response planning in place 
  • Solvency monitoring: No assessment of third-party solvency or financial viability 
  • Security controls: No adequate visibility into their vendors' security controls 
  • Regulatory compliance: No alignment with your regulatory requirements 
  • Corporate social responsibility (CSR): No processes to protect your organization's brand and CSR  
  • Health and safety: No health and safety controls in place 

Process to Build a Risk Management Framework 

Once you have an initial process set, build your organization’s third-party risk management program with these risk management framework steps, beginning with your information security-related areas: 

  • Inventory all third-party relationships in your organization 
  • List specific cybersecurity risk exposure 
  • Categorize third parties by risk and focus on all key activities 
  • Design due diligence testing focused on critical cybersecurity risk 
  • Build a stakeholder team for governance and framework decisions 
  • Review key vendor and supplier activities and set benchmarks  
  • Identify lines of organizational defense teams, including owners, oversight and audit 
  • Establish contingency plans in the event of incidents or third-party quality decline 

READ: How to Create an Enterprise Risk Appetite Statement

Implementing a Third-Party Risk Management Framework 

A robust third-party risk management framework helps you and your organization stay vigilant to all risk beyond cybersecurity, and is imperative to building a world-class third-party risk management program.  

Keep the following in mind when launching a third-party risk management framework: 

  • Effective framework implementation entails input and adoption from all functional areas  
  • Ongoing updates to the framework are required to keep risk management a priority 
  • Keep the framework flexible for your organization by adjusting the scope as needed 
  • Monitor and institute metric standards and reporting schedule 

With a newly sophisticated threat-laden environment, building a solid third-party risk management framework will help your organization identify and minimize risk while still being able to confidently depend on your third parties. 

Although reasonable efforts will be made to ensure the completeness and accuracy of the information contained in our blog posts, no liability can be accepted by IANS or our Faculty members for the results of any actions taken by individuals or firms in connection with such information, opinions, or advice. 

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