Third-Party Risk Management: Closing the Door on Vendor Risk

You can lock down your internal systems, but if your vendors aren’t held to the same standard, you’ve left the door open. There are new buzzwords that emerge every day in the world of cybersecurity as we deepen our understanding of risks and the threats on the horizon. The emerging spark word in 2025 and moving into 2026 is third-party risk or vendor risk. Organizations tend to view their security controls as the front line or barrier to their security posture, and, unfortunately, we are never fully protected by the controls or products we invest so much time and money in. It’s time we take a different approach, from the outside in.

Third parties are all around us. They are your suppliers, partners, and sometimes a critical dependency in your organization. Most organizations could not survive without the use of a third-party vendor unless they are functioning as an all-manual shop, which, kudos to you for that.

Let’s take a real-world example into consideration.

Take a moment to think about how many companies out there have your medical information. Can you count? How many different doctors have you been to in the last year? Do you know if they are all using the same electronic medical record software? Absolutely not, but those aren’t the questions we are worried about asking at the doctor’s office. Those medical records you see at the dentist or at your primary doctor may be stored on 3 different software systems, which may be hosted by 3 different vendors that outsource their storage or IT management to another vendor, and the cycle keeps going. So, when you finally get that letter in the mail that says, “your PHI may have been exposed in a recent security incident,” and the subject line is a settlement agency with a name of a vendor you have never directly worked with, that is third-party risk.

Any third party that has access to your data, systems, or operations introduces a level of uncertainty. Third-party risk management exists to reduce that uncertainty and ensure those relationships don’t become liabilities.

Third-party risk should be a priority. Not only are there technical or cyber risks, but there are also operational, reputational, compliance, and financial risks associated with third parties. It is important that an organization understands the differences so it can manage them effectively.

Cyber risk may be the first one we think of, and that is where our worry about data breaches and system vulnerabilities lies. Operational risk is system or service disruptions in your environment that impede your business processes. Reputational risk is the public eye associating your organization with poor practice, which could inevitably deter business. Compliance risk is plausible due to regulatory violations, which could easily be caused by a vendor’s lack of cooperation in gathering due diligence documentation or by a lack of thorough risk assessment. Financial risk could cause your organization to suffer a loss due to the instability or poor performance of a third-party vendor.

Now that we understand the scope of how deep vendor risk can run, let’s understand the ways to be proactive in protecting your precious assets.

There is a TPRM lifecycle that is simple and effective for managing these risks. First, identify vendors and classify them. Then you conduct a due diligence review and risk assessment to determine the level of risk a vendor may pose to your organization. Then comes contracting. It is vital to review contracts that are full of legal verbiage likely protecting the vendor and also contain strict responsibilities of your organization. Next is ongoing monitoring, which continues until you reach termination or offboarding. Ongoing monitoring includes reviewing vendors and reassessing to confirm compliance year over year. The last step of the lifecycle is offboarding or termination. This is where you ensure your organization protects its data and is knowledgeable on what happens to its data after termination, such as data destruction, as well as removing any access that a vendor may have to your internal systems. 

The goal in every organization is to make this simpler and easier. 

Start by standardizing risk assessments. Follow the same procedure for each vendor based on classification. For example, for a critical vendor or high-risk vendor, you may ask for several certifications, independent audits, a penetration test, and a full review of policies. Whereas a vendor that does not receive any confidential data from your organization, you may only review a SOC 2 or an ISO 27001 certification. Automation is key, especially when there are more vendors than there are days in the year. This work can become overwhelming very quickly, and it is very easy to allow vendors to fall through the cracks.

At this point, it is no longer a choice; it is a need for continuous risk management to close the door.