Third-Party Risk Management: Securing Your Extended Enterprise
By Tom Glover,
Chief Revenue Officer at Responsive Technology Partners
Your business doesn’t operate in isolation. The average mid-sized company works with hundreds of third parties – vendors, suppliers, contractors, and service providers who have varying levels of access to your systems and data. Each of these relationships represents a potential security vulnerability that could lead to a damaging breach.
As a business leader who’s guided dozens of organizations through their security transformations, I’ve observed a consistent pattern: companies invest heavily in their own security while inadvertently leaving the backdoor open through their third-party relationships.
The Growing Third-Party Risk Landscape
The numbers tell a sobering story. According to recent research, 60% of data breaches involve a third party or supply chain partner. The average cost of these breaches exceeds $4.5 million, not including the reputational damage and lost business that inevitably follows.
What’s driving this trend? Several factors:
The rapid expansion of technology ecosystems means more third-party tools, platforms, and services being integrated into your core business.
Cloud-based infrastructure has created complex interdependencies where your data flows across multiple service providers.
Regulatory requirements increasingly hold your organization accountable for the security practices of your vendors and partners.
Digital transformation initiatives often prioritize speed to market over security concerns, leading to hasty vendor selections.
The risk isn’t theoretical. Consider the SolarWinds breach that affected thousands of organizations, including multiple government agencies. The attackers infiltrated SolarWinds’ software development pipeline, injecting malicious code into a legitimate software update that was then distributed to customers. Those customers had done nothing wrong – they simply installed a routine update from a trusted vendor.
This new reality demands a strategic approach to third-party risk management (TPRM). Let me share what works based on years in the trenches.
Building a Practical TPRM Strategy
Rather than overwhelming you with a lengthy checklist, I’ll focus on the core components of an effective third-party risk management program:
- Inventory and Classification
You can’t manage what you don’t measure. The foundation of any effective TPRM program is a comprehensive inventory of all third parties that have access to your data, systems, or facilities.
Start by documenting:
- What third parties have access to your environment?
- What systems and data can they access?
- What business functions do they support?
- How critical are they to your operations?
This inventory should be categorized based on risk factors like:
- What type of data they access (sensitive, regulated, operational)
- How essential they are to your business continuity
- The level of system access they require
Many organizations I’ve worked with are shocked when they map this out. One healthcare provider discovered they had over 1,500 active vendor relationships – far more than they had realized. Only by mapping these relationships could they begin to manage them effectively.
- Vendor Assessment Process
With your inventory in hand, establish a standardized process for evaluating third parties before you engage them and periodically afterward. This process should be:
Scalable: Not every vendor needs the same level of scrutiny. A cloud provider hosting sensitive customer data warrants a more rigorous assessment than an office supply vendor.
Practical: Focus on actual risk indicators rather than box-checking exercises. A meaningful assessment evaluates security controls, incident response capabilities, and business continuity plans.
Ongoing: Vendor security is not a one-time checkpoint but a continuous process that needs regular reassessment.
For assessment tools, consider using standardized frameworks such as the Standardized Information Gathering (SIG) questionnaire or the Vendor Security Alliance questionnaire. These provide comprehensive coverage while reducing the burden on your team and your vendors.
- Contractual Protections
Your vendor contracts represent a critical risk management tool. Beyond typical business terms, ensure they include:
Security requirements: Specific security controls the vendor must maintain, aligned with your own security standards
Right to audit: Your ability to verify the vendor’s security controls, either directly or through an independent assessment
Incident notification: Clear requirements for the vendor to promptly notify you of security incidents that may affect your data
Data handling provisions: Specific requirements for how the vendor processes, stores, transmits, and disposes of your data
Liability and indemnification: Appropriate risk allocation for security incidents
Subcontractor management: Requirements for how the vendor manages its own third-party relationships
I recently worked with a financial services firm that discovered a critical gap in their legacy vendor contracts – no clear requirements for incident notification. When one of their vendors suffered a breach, the firm learned about it through the news, not from the vendor directly. By that point, remediation efforts were significantly delayed.
- Continuous Monitoring
Point-in-time assessments are necessary but insufficient. You need continuous visibility into your vendors’ security posture. This can include:
Periodic reassessments: Formal re-evaluations of critical vendors on a regular schedule
Security ratings services: Subscription services that provide external security ratings for your vendors
News and threat intelligence monitoring: Active tracking of security events and vulnerabilities related to your vendors
Automated technical monitoring: Continuous scanning of vendor-exposed assets and connection points
One manufacturing client implemented a quarterly security review process for their top 20 vendors. During one of these reviews, they discovered a key supplier had disabled multi-factor authentication to address internal usability complaints – without notifying any customers. This change violated their contractual security requirements and created significant risk.
- Incident Response Integration
Your incident response plan must account for third-party breaches. This means:
Clear procedures: Documented steps for responding to vendor security incidents
Communication plans: Pre-established channels for secure communication during incidents
Coordination protocols: Defined roles and responsibilities between your team and the vendor’s team
Testing scenarios: Regular tabletop exercises that include third-party breach scenarios
A recent telecommunications client conducted a tabletop exercise simulating a breach at their payment processor. The exercise revealed that no one on their team had direct contact information for the processor’s security team, which would have significantly delayed response time in a real incident.
Common TPRM Pitfalls to Avoid
Even well-resourced TPRM programs encounter challenges. Here are some frequent missteps I’ve observed:
Over-reliance on questionnaires: Self-reported security information has inherent limitations. Verify critical controls through evidence, not just attestation.
Treating all vendors equally: A tiered approach that focuses the most rigorous controls on your highest-risk relationships is more efficient and effective.
Poor coordination between departments: TPRM requires collaboration between security, legal, procurement, and business units. Siloed approaches create dangerous gaps.
Failing to monitor fourth-party risk: Your vendors’ vendors (fourth parties from your perspective) can introduce significant risk. Include fourth-party risk management requirements in your third-party oversight.
Neglecting offboarding: When vendor relationships end, ensure all access is properly removed and data is returned or destroyed according to policy.
Building a Threat-Informed Program
The most effective TPRM programs are built based on specific threat scenarios rather than generic best practices. Consider these common attack vectors:
Compromised credentials: Vendors with access to your systems may have weaker authentication controls than your organization. Require MFA for all third-party access.
Vulnerable systems: Unpatched systems at vendor organizations can provide entry points for attackers. Establish minimum patch management requirements.
Insecure data transmission: Data moving between organizations presents interception risks. Require encryption for all data in transit.
Malicious insiders: Vendor employees with access to your data could abuse that access. Require vendors to implement principle of least privilege and appropriate monitoring.
By designing your TPRM program to address specific threats, you can prioritize the controls that matter most.
The Human Element of Vendor Risk
Technology and processes are vital, but don’t overlook the human dimension. Strong vendor relationships built on trust and communication often provide early warning of potential issues.
Encourage your team to:
Build relationships: Develop professional relationships with your key vendor contacts so they feel comfortable raising concerns.
Promote transparency: Create a culture where vendors know they won’t be penalized for reporting security issues promptly.
Provide education: Help vendors understand your security requirements and why they matter.
Recognize good security behavior: Acknowledge vendors who demonstrate security excellence.
One retail client maintained such strong relationships with their primary technology vendors that a vendor security analyst contacted them directly when he observed suspicious activity that might affect their environment. That early notification allowed them to block an attack before it fully materialized.
Looking Ahead: The Future of TPRM
The third-party risk landscape continues to evolve. Forward-thinking organizations are implementing these emerging practices:
Collaborative risk management: Industry groups sharing vendor security information to reduce assessment burden and improve coverage.
Real-time risk monitoring: Moving beyond periodic assessments to continuous, automated evaluation of vendor security posture.
Security by design: Integrating security requirements into the earliest stages of vendor selection, not as an afterthought.
AI-enhanced risk analysis: Using machine learning to identify patterns and predict potential vendor security issues before they manifest.
Shared assessments: Standardized assessment frameworks that vendors can complete once and share with multiple customers.
Action Steps for Business Leaders
If you’re looking to strengthen your third-party risk management approach, consider these practical next steps:
- Conduct a third-party inventory – Map all vendor relationships, focusing on those with access to sensitive data or critical systems.
- Perform a gap analysis – Evaluate your current TPRM practices against industry standards to identify improvement opportunities.
- Develop a tiered assessment approach – Create different assessment levels based on vendor criticality and access.
- Review and enhance vendor contracts – Ensure security requirements are clearly documented in all vendor agreements.
- Implement continuous monitoring – Move beyond point-in-time assessments to ongoing visibility.
- Train your team – Ensure those responsible for vendor management understand security risks and requirements.
- Integrate with broader risk management – Align your TPRM program with your enterprise risk management framework.
Conclusion
Third-party risk management isn’t just a security function – it’s a business imperative. As your organization’s digital ecosystem expands, your security perimeter extends to encompass all your partners and providers.
By implementing a structured, risk-based approach to third-party management, you’re not just protecting your data and systems – you’re safeguarding your reputation, customer trust, and bottom line.
The organizations that thrive in this interconnected environment will be those that effectively balance innovation and collaboration with thoughtful risk management. They’ll move quickly but not recklessly, partner broadly but not blindly, and trust but verify at every step.
It’s a challenging balance to maintain, but the alternative – leaving your extended enterprise unsecured – is simply not an option in today’s threat landscape.
Tom Glover is Chief Revenue Officer at Responsive Technology Partners, specializing in cybersecurity and risk management. With over 35 years of experience helping organizations navigate the complex intersection of technology and risk, Tom provides practical insights for business leaders facing today’s security challenges.