The aim of third party risk management (TPRM) is to identify, assess, and mitigate the risks that come with working with external entities. These risks may involve financial, reputation, and legal issues, as well as concerns about data security and compliance. The TPRM process involves several stages to effectively manage and control the risks associated with third parties. Here are five phases you ought to consider when designing a TPRM program.
Phase 1: Identification and Assessment
The first phase of TPRM is the identification and assessment of third parties. This involves identifying the third parties that the organization engages with and assessing the risks associated with each of these parties. The organization should consider the type of services that the third party provides, the level of access they have to sensitive information, and the impact that their failure or breach could have on the organization.
Phase 2: Due Diligence
Once the third parties have been identified and assessed, the next phase of TPRM is due diligence. This involves conducting a thorough review of the third party to assess their ability to meet the organization’s requirements and expectations. This may include reviewing their financial stability, reputation, and compliance with relevant laws and regulations.
Here are 5 considerations for screening third parties:
- Track Record – look for reviews and ratings online as well as ask for references.
- Financial Stability – look into their financials and secure proof of payment and delivery.
- Licensing & Compliance – make sure they are legal, ethical, and compliant with relevant laws and regulations. Keep in mind OFAC rules and geopolitical sanctions checks
- Technology – examine the types of technology they use to ensure security standards are met and that they have up-to-date systems.
- Insurance Coverage – check that the third party is properly insured to protect against liabilities in case of unforeseen circumstances or mistakes/malfunctions on their end.
Phase 3: Contractual Agreement
Once the due diligence process is complete, the organization should enter into a contractual agreement with the third party. This agreement should outline the terms and conditions under which the third party will provide services to the organization, as well as any expectations or requirements that the organization has for the third party. The agreement should also include provisions for managing and mitigating any risks associated with the third party, such as provisions for terminating the relationship in the event of a breach or failure to meet expectations.
Phase 4: Ongoing Monitoring
The fourth phase of TPRM is ongoing monitoring of the third party. This involves monitoring the performance of the third party to ensure that they are meeting the terms and conditions of the contractual agreement. This may include conducting regular audits and assessments, as well as reviewing any reports or information provided by the third party.
Third Party Reporting
Third party reporting refers to the process of collecting and disseminating information about the performance and risk profile of third parties that an organization engages with. This information may be collected through regular audits and assessments, as well as through reports and other data provided by the third parties themselves. Third party reporting is an important component of third party risk management (TPRM), as it helps organizations to identify any issues or concerns with their third parties and take appropriate action to address them.
Phase 5: Offboarding Third Parties
Third party offboarding refers to the process of ending a relationship with a third party that an organization has engaged with. This may involve terminating a contract, transitioning to a new third party, or simply no longer using the services of the third party. By carefully managing the process of offboarding, organizations can ensure that they are minimizing any extraneous access or risk to their operations and protecting their assets and reputation.