Master third-party risk management with AI-driven strategies

Third-party risk management (TPRM) is no longer a nice-to-have but a critical priority for organizations navigating today’s interconnected business environment.

With high-profile data breaches dominating headlines and growing regulatory scrutiny, ignoring third-party risks could damage more than just your reputation. Fortunately, advancements in AI-powered technology are reshaping how businesses approach TPRM, enabling more proactive, efficient, and comprehensive risk management strategies.

This article explores some of the key principles, common challenges, and practical tactics outlined in Effective third-party risk management: Harnessing AI-powered technology for success. Ready to elevate your TPRM strategy? Download the full ebook for an in-depth guide to managing third-party risks effectively.

The core principles of TPRM

A TPRM program provides discipline, structure, and oversight to guide the plans, policies, and processes by which your organization:

• Identifies and categorizes the third parties you engage. You can’t manage risk effectively without a regularly updated inventory of all potential sources.
• Understands and prioritizes the risks presented by third parties. Not all third parties present equal risk and should not consume equal risk management capacity.
• Establishes and enforces key controls for mitigating those risks. Third-party risk/controls assessments should address and prioritize the risks that matter most to your organization. Set up contracts, expectations, and service-level agreements (SLAs) to hold third parties accountable for effectively managing those risks.
• Performs monitoring that tracks and regularly reassesses third-party relationships and risk exposures. Risk is dynamic, changing over time. Design TPRM policies and processes to help you catch and respond to the changes that matter.
• Responds to real-time issues and communicates TPRM awareness and accountability throughout the organization. Everyone can play a role in managing third-party risk. TPRM policies, protocols, and reporting should support organization-wide awareness of key risks, ongoing engagement with third-party relationship owners, proactive TPRM practices, informed decision-making, and timely, effective issue responses.

TPRM programs thrive with a culture of accountability, where managing third-party risks is a shared responsibility across teams.

Common challenges of TPRM

All organizations face challenges in establishing effective TPRM programs. A research report by AuditBoard and CyberRisk Alliance found that limited staffing to support third-party risk management was the most commonly cited challenge (37%), while difficulty/complexity of third-party due diligence (35%), and a large number of third parties (34%), followed closely behind.

Risk categorization strategies

Since all third parties do not present equal risk, they should not consume equal risk assessment capacity. Develop criteria to help you categorize third parties into high-, medium-, and low-risk buckets that help you better allocate your limited resources where they’ll have the most impact. Creating and updating third-party risk categorization is a key success factor for any TPRM program.

• Is the third party a critical dependency to meet organizational objectives?
• Will the third party have access to confidential or customer data?
• Will the third party directly access your infrastructure, networks, or systems?
• Does the third party support the availability of customer-facing services or critical internal business functions?
• Can the third party impact your organization’s reputation or business relationships?

Keep an eye on distribution across tiers. Most third parties should fit into Tiers 2 and 3. Be very discerning when categorizing third parties as Tier 1 since that’s where you’ll invest the most time and resources.

Monitoring tactics

Given your organization’s risk prioritization and TPRM categorizations, how should you tailor monitoring tactics to match? The most important success factor is to structure and formalize continuous monitoring activities based on risk level. Higher-risk third parties should receive more attention more frequently, and lower-risk third parties should receive less attention less frequently. Risk changes over time, so reassessments should involve appropriate rediscovery with your organization’s third-party relationship owners.

Using AI-powered technology

Consider technology tools that create a safety net and enable ongoing visibility. For example, automated discovery tools that connect to payment or contracting systems (e.g., G2 Track) can be set up to provide alerts following triggers you establish.

AuditBoard’s TPRM software enables your team to collaborate across the organization. It provides a workflow to help automate the vendor intake process, combine third-party data into a single editable profile to save time, and conduct dynamic vendor risk assessments across the various risk domains pertinent to your organization.

The solution also offers teams the option of leveraging either Security Control Questionnaires or Standardized Questionnaires with the Automated Assessment Completion feature. Powered by AuditBoard AI, Automated Assessment Completion leverages a document provided by the vendor, such as a SOC 2 report, and suggests the correct answers to the questionnaire based on the analyzed document. This greatly reduces the time it takes for vendors to complete these questionnaires while still providing organizations the flexibility to assess risk within their security context.

Be proactive, not reactive

The penalties for neglecting third-party risks are rising, and the cost of a data breach far exceeds investments in proactive risk management. Don’t wait for an incident to drive change.

Start transforming your TPRM strategy today with the right insights and tools. To learn more, download your copy of Effective third-party risk management: Harnessing AI-powered technology for success.