10 Best Practices To Enhance Your Third-Party Risk Management

Third-party Risk Management

Effective third-party risk management isn’t just about setting policies—it’s about integrating risk-aware thinking into daily operations, tools, and relationships. But what exactly is third-party risk management (TPRM)?

The average company shares confidential information with 583 third-party vendors.

Third- party risk management entails a process of constant identification, evaluation, watch and mitigation of risks occurred as a result of having relationship with the third party- suppliers, vendors, service providers and contractors or partner. It’s a strategic approach designed to safeguard your most critical assets — from your reputation to regulatory compliance — while strengthening your compliance management system and ensuring long-term operational resilience.

Whether you’re just beginning to formalize your approach or scaling a mature program, the following best practices and tactical moves will help you manage risk proactively, maintain compliance, and build resilience across your vendor ecosystem.

1. Build a Centralized Third-Party Risk Management Policy (TPRM Policy)

Your TPRM Policy acts as the backbone of your entire program. It should define:

• What qualifies as a third party vendor or third party company
• How vendors are categorized based on access to sensitive systems or data
• Who owns the risk at each stage of the third party relationship
• What tools and frameworks (e.g., ISO 27001, NIST) guide assessments

Provide clear guidelines in regard to due diligence procedures, ongoing evaluation, timelines of re-evaluation processes, and requirements to refuse, reject, or terminate a vendor. With centralization of expectations your team and stakeholders in IT, legal, procurement, and compliance can all play out of the same playbook.

Establish role based TPRM responsibilities at department levels- this removes bottle necks and distributes risk ownership. 

2. Standardize Risk Score Calculation

To support risk prioritization, every third-party relationship should be assigned a risk score using a well-defined and repeatable risk score formula.

Factors may include:

• Likelihood of a data breach or non-compliance
• Impact severity if the risk materializes
• Effectiveness of existing controls
• Data sensitivity level handled by the vendor

You can adapt models like Open FAIR or apply Monte Carlo simulations (as seen in some modern third party risk management solutions) to quantify these scores more precisely. This standardization prevents decision-making bias and ensures clear comparisons across your vendor portfolio.

You may customize model such as Open FAIR or use Monte Carlo simulation (as seen in some modern third-party risk management solutions) to measure such scores with more exactness. Such standardization eliminates decision-making bias and ensures clear comparisons across your vendor portfolio.

Integrate your risk score formula into the workflows of your procurement and contracts making sure that risk is discussed prior to the signing of a deal.

3. Implement a Tiered Approach to Due Diligence

Not all third party suppliers carry equal risk. Tailor your due diligence effort based on the vendor’s criticality and access levels:

The method will save time and budget while still keeping the risk exposure under control. Vendors with contact with customer data, financial systems, or core infrastructure must always be required to undergo Tier 1 scrutiny.

Apply questionnaire scoring and evidence validation with help of AI-driven third-party risk management tools.

4. Continuously Monitor Cyber Posture

Point-in-time assessments aren’t enough. With the rise in third party cyber risk, it’s essential to monitor your vendor ecosystem in real time. This includes:

• Dark web and breach monitoring
• Credential exposure tracking
• Cloud configuration audits
• Compliance status updates (e.g., SOC 2 expiration)

Many organizations are moving toward integrated third-party risk management solutions that provide dashboards and alerts to detect and act on risk events faster.

Set automated thresholds that escalate or trigger reassessment when vendor risk posture changes.

5. Map Risks to Compliance Requirements

An overlooked but powerful move is aligning vendor risk categories to your compliance management system. That means mapping third-party activity to:

• GDPR, CCPA (privacy)
• HIPAA (health data)
• SOX (financial)
• ISO 27001/NIST CSF (security)

This will make you ready to be audited anytime and minimizes the probability of receiving a non-compliance penalty or reputation damage should you lose confidentiality.

Have made an internal heatmap of compliance that is superimposed on vendors and regulations that they interact with.

6. Integrate TPRM into Procurement and Legal Processes

Waiting to involve the security or compliance team after a vendor is onboarded is a recipe for trouble.

Instead:

• Include TPRM checklists in procurement workflows
• Require security and compliance reviews as a precondition to contract approval
• Have pre-written security clauses embedded in MSA templates

This closes the gap between legal risk and cyber risk, while improving consistency across engagements.

Collaborate with procurement to develop a “Preferred Vendor List” that reflects assessed, approved third parties.

7. Prepare for the Worst: Data Breach Response Plans

Even with the best planning, breaches happen. That’s why part of managing third-party risk is ensuring your vendors have an active and tested data breach response plan. You should know:

• How quickly they’ll notify you
• Who owns communication with regulators or affected users
• What legal support and forensics they offer
• Whether your insurance covers third-party breaches

Simulate a third party data breach scenario annually to test your end-to-end incident response capabilities.

8. Evaluate & Evolve Your Tool Stack

Whether you use spreadsheets, GRC platforms, or an advanced third-party risk management solution, it’s vital to periodically assess if your tools still meet the scale and complexity of your risk exposure.

Look for capabilities like:

• Vendor portal access
• Risk score aggregation
• Custom assessment templates
• Integration with SIEM or ticketing platforms
• SLA and contract performance tracking

Don’t just review vendors—review your tools. A mature TPRM program evolves with your business and threat landscape.

9. Establish a Vendor Offboarding Playbook

Security doesn’t end when a contract does. Every third party company should be offboarded securely:

• Revoke access credentials
• Recover or destroy data
• Audit any open support tickets or system integrations
• Close accounts and document the exit

Neglecting offboarding can leave backdoors open and contribute to shadow IT risks.

Add vendor offboarding to your quarterly internal audits checklist.

10. Make Risk Reporting Executive-Ready

Finally, great third-party risk management means being able to clearly communicate issues, trends, and priorities to leadership. Your reports should:

• Use visualized risk scores (heatmaps, matrices)
• Show progress toward compliance benchmarks
• Highlight top 10 high-risk vendors and remediation status
• Connect vendor risk to business outcomes (revenue, reputation)

Present a quarterly Third-Party Risk Dashboard to the board or CISO, with metrics like # of critical vendors, average risk score, and time-to-remediate.

Turning TPRM Best Practices into Everyday Habits

Third-Party Risk Management cannot be considered a one-time compliance operation; it is a continuous practice that needs to be cautious, flexible, and cooperative. Successful organizations are not those who have the best vendor contracts; they are those organizations who breathe their TPRM policy each day, making the best practices a regular habit with procurement, security, legal, and leadership groups.

In being proactive to assess, monitor, and re-evaluate third-party relationships, not only are you reducing the risks of potential threats affecting you but also protecting your operational continuity, your compliance rating, and brand image.  

Every vendor decision you make today shapes your organization’s resilience tomorrow.