How to Write Third-Party Risk Management (TPRM) Policies and Procedures

As organizations set out to mature their cybersecurity programs, vendor risk management (VRM) is a primary risk mitigation strategy. However, managing third-party risk becomes overwhelming, especially as they incorporate more cloud-based vendors to help streamline business operations. While monitoring used to be based on a “trust but verify” mentality, the modern move towards “verify then trust” requires organizations to pivot their programs and become more proactive. Writing third-party risk management (TPRM) policies and procedures needs to act as the foundational guidelines for creating an effective vendor risk management strategy.

What is the difference between third-party risk management and vendor risk management?

Although many people use the terms interchangeably, the two have nuanced differences. While both vendors and third-parties enable business processes and require contracts, the types of services or products and the way in which they provide these services or products differs.

Vendors are usually people or entities that provide goods and services either in a business-to-business, business-to-consumer, or business-to-government relationship. In a business context, vendors might be freelancers or technology device suppliers.

Third-parties are entities, as opposed to individuals, that either provide products or services to an organization’s customers on its behalf or to the organization in a way that enables it to maintain daily business operations. In a business context, third-parties might be resellers of a product or cloud-services providers whose tools enable the company to manage financials.

In short, while both require monitoring, they also incorporate slight differences that change the risks they pose.

Why TPRM is important

Establishing a strong TPRM program reduces the negative impact that your company’s technology business decisions can have on both your customers and your financial solvency. Third-parties pose a variety of cybersecurity risks to your organization that need to be assessed and either transferred, mitigated, accepted, or denied.

Operational risk

Third-parties pose potential operational risks if they provide a technology integral to continued business operations. If the third-party experiences a cyber attack that shuts down the service, your organization may experience business interruption.

Reputational risk

While operational risk applies to your business’s ability to continue to provide customers a service or product, reputational risk applies to how customers view your organization. If your third-party experiences a data breach, then your organization may experience decreased customer trust or loyalty in the aftermath.

Compliance risk

As more industry standards and regulations incorporate third-party vendor risk as a compliance requirement, you need to ensure that you apply your organization’s risk tolerance to your third-party business partners as well. For example, if a primary control within your organization is to update security patches every thirty days, then you should hold third-parties accountable to that same standard and monitor to verify their controls’ effectiveness.

How to create effective TPRM policies and procedures

Establishing effective TPRM policies follows a similar process as writing your own cybersecurity policies. For the most part, you need to think of third-party business partners as an extension of your own IT landscape.

Identify and analyze

You already know the risks that third-parties pose, but you also need to incorporate the types of software, services, networks, devices, and data that third-parties access. For example, your Enterprise Resource Planning (ERP) third-party platform accesses sensitive information such as account numbers and financials.

Once you’ve identified the risks, you then need to determine which third-parties would have the greatest negative impact to your organization if they experienced a data incident. An ERP would have a compliance, reputational, and operational impact if their services are held hostage by ransomware. Meanwhile, assuming that cybercriminals cannot move from a corporate blog to more important systems, a Distributed Denial of Service (DDoS) attack on your corporate blog would be a low risk.

Define controls

You know the controls that work best for securing your company’s data. You need to make sure that third-parties have the same level of risk tolerance as you. When creating your TPRM policy, you need to define the types of controls you expect your third-parties to use. If possible, you should incorporate these into the contract. For example, you might require third-parties to use encryption to protect data that they transmit, store, or process. Other potential controls might be requiring them to update security patches within thirty days or segregating cardholder data on a separate network from business data.

Set metrics

After setting controls, you need to find a way to measure third-party compliance. Metrics can include things like time to detect a security incident, time to remediate a risk, or time to recover from an incident. Problematically, while you might be able to measure your own cybersecurity controls’ effectiveness, third-parties are more difficult. Often, you need to review self-assessment questionnaires or point-in-time audit reports that the third-party provides.

Continuously monitor

Increasingly, compliance requirements incorporate continuous monitoring of and governance over third-party business partners. These requirements mean that your organization is responsible for monitoring its third-parties’ controls as diligently as it monitors its own. Arguing “I didn’t know” no longer acts as a viable response when a third-party experiences a data security incident. Many organizations incorporate platforms that can monitor ecosystem risk, providing real-time visibility into the complex IT risks associated with the ever expanding attack surface.

SecurityScorecard enables TPRM policies and procedures

SecurityScorecard’s security ratings platform enables organizations to align their TPRM policies and procedures to their own cybersecurity risk monitoring programs. SecurityScorecard collects publicly available data across ten risk factors, including IP reputation, DNS health, network security, web application security, patching cadence, endpoint security, leaked information, hacker chatter, and social engineering.

Because organizations can align their risk tolerance to SecurityScorecard’s easy-to-read A-F ratings, they can apply baselines to their third-party risk management policies and establish procedures for reviewing risk. Leveraging SecurityScorecard’s Atlas platform, organizations can securely send and receive third-party questionnaires, then verify them in real-time to create a “verify then trust” approach to TPRM.