9 Essential Components of a Third Party Risk Management Programme

Managing third-party risk has become a board-level priority as organisations increasingly rely on external partners to deliver products and services. A well-defined Third-Party Risk Management (TPRM) programme helps you gain the benefits of working with third parties whilst maintaining security, compliance, and operational resilience.

Below are nine components we consider essential for every third-party risk management programme.

1. Governance and Oversight

Establish clear governance structures and accountability for third-party risk. Your TPRM policy should include executive sponsorship and board oversight to set the appropriate tone at the top. Senior management must approve risk appetite levels and ensure the programme has adequate resources. Assign specific roles and responsibilities so everyone understands who manages which aspect of third-party risk.

2. Third-Party Register

You cannot manage what you don't measure. Begin by developing a complete inventory of all third-party vendors your organisation uses. For each vendor, document the nature of their services, the data or systems they access, and their criticality to your operations. Categorise third parties based on business criticality, focusing greater oversight on high-risk or critical relationships.

3. Due Diligence and Risk Assessment

Conduct thorough initial and ongoing due diligence on prospective and existing third parties to evaluate their controls. This assessment should cover information security, privacy, financial stability, regulatory compliance, and track record. Common approaches include questionnaires, certifications (such as ISO 27001 or Cyber Essentials Plus), and policy or procedure reviews.

4. Contracts and SLAs

Your contracts with third parties should establish clear expectations around risk management, controls, and compliance. A robust contract serves as a powerful risk mitigation tool and should include specific provisions for data protection, confidentiality, and privacy requirements, as well as the vendor's obligations during a security incident. By embedding control expectations into contracts, you create enforceable commitments that hold third parties to the same standards you follow internally.

5. Ongoing Monitoring and Auditing

Managing third-party risk requires continuous oversight, not just initial onboarding checks. Once a vendor is onboarded, implement ongoing monitoring to stay aware of changes in their risk and control environment. This can include periodic security reviews or questionnaires, regular meetings to discuss performance, reviewing independent audit reports annually, and tracking key metrics (such as SLA compliance and incident history).

6. Fourth-Party Risk Management

Recent high-profile breaches involving fourth parties demonstrate that you need to look beyond your own third parties. These downstream entities can introduce hidden vulnerabilities. For example, if one of your supplier's critical suppliers suffers a major outage, this will impact their service to your company. To address fourth-party risk, enhance your TPRM programme to include visibility and requirements for your vendors' key suppliers.

7. Incident Response

Despite best efforts, incidents involving third parties will happen. Having a well-defined incident response and contingency plan for third-party incidents is essential. Ensure your organisation can react quickly if a vendor experiences an issue. For critical services, develop backup arrangements or alternative suppliers in case a third party fails. This might involve maintaining redundant providers or internal backup processes to keep operations running.

8. Termination and Offboarding

Most third-party relationships will end at some point. When a contract expires or is terminated, ensure you have a consistent approach and methodology outlined in your third-party risk management programme. A smooth offboarding process protects your organisation by closing potential exposures—for example, suppliers may still have login credentials or access to company confidential data.

9. Continuous Improvement and Reporting

Like any approach to risk management, an effective TPRM programme requires continuous monitoring and enhancement. Regularly review and update your third-party risk management policies, procedures, and tools to reflect lessons learnt from incidents and changes in business requirements. Track programme performance and report on third-party risks to senior management and the board. Develop metrics and dashboards (such as number of high-risk vendors, outstanding issues, trend of vendor assessment scores) to communicate the risk landscape in business terms.

To learn more about how calQrisk can help you manage your third-party risk, contact us today.