Cybersecurity in Third Party Risk Management: Protecting Your Digital Assets

In today’s interconnected digital ecosystem, businesses rely heavily on third-party vendors and service providers for critical operations. However, every partnership with an outside vendor introduces potential vulnerabilities. Third-party risk management is the practice of identifying and mitigating risks that arise from these external relationships. The stakes are high: a security weakness in a vendor can quickly become your security weakness. When even trusted suppliers can be conduits for cyberattacks, organizations must proactively manage third-party risks to protect digital assets and safeguard sensitive data.

The Expanding Cybersecurity Risk from Growing Partner Dependency

As businesses pursue greater efficiency, innovation, and scale, their reliance on external suppliers and partner organizations continues to rise. This interconnectedness means sensitive data and critical systems are routinely shared beyond company boundaries, expanding the potential attack surface. Each new partnership introduces not only operational benefits but also fresh cybersecurity risks, as a single weak link can expose the entire network to threats.

What Is Third-Party Risk Management?

Third-party risk management (TPRM) is a structured approach to evaluating and controlling the risks posed by external vendors, suppliers, contractors, and partners. It’s about ensuring that your business partners don’t become your weakest link. This discipline includes all the processes a company uses to vet vendors before onboarding, monitor their security practices during the relationship, and mitigate any issues that arise. The goal is to prevent a scenario where your supplier risk management failures result in downtime, data theft, regulatory penalties, or reputational damage.

Every organization that shares data or systems with outside parties engages in some form of TPRM. This could range from a bank assessing the security of a fintech partner, to a hospital evaluating a cloud IT provider, to a retail company reviewing an outsourced call center. Regardless of industry, third-party risk management involves common elements: setting security requirements for vendors, conducting due diligence and third-party risk assessments before contract signing, continuously monitoring vendor performance and security, and having contingency plans in place in the event of a vendor incident. TPRM asks the question: “If we entrust this third party with our information or services, what new risks do we face, and how do we address them?” By systematically answering this question for each vendor, businesses can extend their cybersecurity defenses beyond their own walls.

It’s worth noting that third-party risk extends to many domains, not just cybersecurity, but also operational continuity, regulatory compliance, and financial stability. However, cybersecurity is often front and center because a breach at a vendor can directly lead to your data being exposed or your systems being compromised. Vendor risk management programs usually put a heavy emphasis on evaluating the cybersecurity posture of vendors.

The Growing Threat of Third-Party Cyber Risks

Modern supply chains and vendor networks are more complex and far-reaching than ever. Companies may work with hundreds or even thousands of third parties, forming an interconnected web of data exchange and system access. This reality has made supply chain security a top concern. Attackers have learned that breaching a less secure vendor can be an efficient route into a well-protected enterprise. As a result, cybercriminals increasingly target vendors, suppliers, and software providers to infiltrate their ultimate victims indirectly. At least 35.5% of all data breaches in 2024 originated from third-party compromises, a sharp increase from the prior year.

High-profile incidents in recent years highlight this growing threat. The SolarWinds attack of 2020 is a dramatic example: attackers inserted malware into a trusted IT management software update, which was then distributed to thousands of SolarWinds’ clients, including Fortune 500 companies and government agencies. This supply chain hack went undetected for months, illustrating how deeply a compromised third-party product can infiltrate numerous organizations. Similarly, breaches at cloud service providers, payment processors, and other service vendors have had cascading effects on client companies. When the IT systems of a major third-party provider go down or get breached, hundreds of client organizations can suddenly find their own data stolen or operations disrupted.

Key Components of an Effective TPRM Program

Managing third-party risk is an ongoing lifecycle that mirrors classic risk management, but with additional layers of complexity. A robust third-party risk management policy and program typically includes the following key components:

• Governance and Policy: An organization needs governance structures and clear policies for third-party risk. This means defining roles and responsibilities, setting risk appetite and thresholds, and establishing a third-party risk management policy that outlines how vendors will be evaluated, monitored, and managed throughout the relationship. Good governance ensures that third-party risk is treated as a priority at the executive level and that there is accountability for managing it. It also involves cross-functional collaboration – security, procurement, legal, and business units all have a stake in third-party risk management and should be aligned in the process.
• Vendor Identification and Risk Tiering: You can’t manage what you haven’t identified. An effective program begins with a complete inventory of all third-party relationships, including vendors, suppliers, contractors, consultants, and partners. For each third party, the organization should determine the criticality and inherent risk level of that relationship.
• Due Diligence and Risk Assessment: Before onboarding a new vendor, companies must perform a thorough evaluation of the third party’s risk profile. This due diligence process is essentially a specialized cyber risk assessment focusing on the vendor’s security and compliance posture. It’s often called a vendor risk assessment. The goal is to identify any red flags or gaps in the vendor’s controls before granting them access to your systems or data. This assessment typically involves questionnaires or surveys for the vendor to detail their security measures, reviewing any security certifications or audit reports they have, checking for any recent security incidents or breaches in the vendor’s history, and possibly conducting interviews or on-site audits. By performing due diligence, you gain assurance that the vendor meets your security requirements or you discover issues that need remediation or could be deal-breakers.
• Contractual Controls: Security-conscious organizations include specific clauses in vendor contracts to protect themselves. These may include requiring the vendor to adhere to certain security standards, notification obligations if a breach occurs, the right for your company to audit or assess the vendor’s security controls periodically, data handling requirements, and termination clauses if security requirements are not met. Clearly defined contractual agreements ensure that vendors are obligated to maintain an adequate security posture.
• Continuous Monitoring: Risk management doesn’t stop once the ink on the contract is dry. On the contrary, continuous monitoring of third-party risk is a core component of a strong TPRM program. Threat landscapes and vendor circumstances can change quickly – a vendor that was secure last year might suffer a breach this year, or its security officer might leave, etc. Ongoing monitoring can take several forms. One is periodic reassessments or questionnaires sent to the vendor to update their security information. Another approach is to leverage automated tools and services; for instance, some companies utilize security rating services that scan vendors’ external systems for vulnerabilities or monitor dark web channels for leaked data related to the vendor. Additionally, you should track any news of incidents at your critical suppliers and maintain regular communication with them.
• Incident Response and Fourth-Party Management: No matter how much you vet and monitor, incidents may still happen. A good TPRM program has plans in place for responding to security incidents or breaches that involve a third party. This includes requiring vendors to notify you promptly if they experience an incident and having an internal plan for how your organization will respond. It’s also wise to consider fourth-party risk – that is, your vendor’s own supply chain. Many breaches have shown that your security is only as strong as the weakest link in your vendor’s vendor network.

When all these components work together, the organization creates a feedback loop of improvement: initial vetting keeps risky vendors out, continuous oversight catches problems early, and lessons learned from incidents feed back into better policies and assessments. Building an effective TPRM program is challenging, but it is increasingly non-negotiable in the current threat environment.

Conducting Third-Party Risk Assessments

Performing a comprehensive risk assessment of a potential or existing vendor is the cornerstone of third-party cybersecurity management. Here’s how a typical vendor risk assessment might be conducted:

1. Define the Scope and Information Gathering: Start by determining what information you need from the third party to assess them properly. This usually takes the form of a detailed questionnaire or security survey sent to the vendor. The questionnaire will ask about the vendor’s policies, infrastructure, and safeguards. Common topics include: Do they have a dedicated security team? What frameworks or standards do they comply with? How do they handle data encryption and backups? What identity and access management controls are in place? Do they regularly patch and update systems? Have they had any security incidents in the past few years, and how were those handled? Additionally, you may request documentation such as their information security policy, incident response plan, network architecture diagrams, penetration test results, or compliance certificates.
2. Evaluate the Vendor’s Responses and Controls: Once the vendor returns the questionnaire and documents, your risk management or security team will analyze the information. This step is about identifying gaps or weaknesses. If the vendor reports that they do not encrypt data at rest or that they lack an intrusion detection system, those are noted as risk issues. If they don’t have an up-to-date disaster recovery plan, that’s a concern. Often, companies use a scoring system to rate the vendor’s controls. Some answers may be verified against external information – for instance, checking if the vendor has had any publicly reported breaches or using a security rating tool to obtain a snapshot of their network hygiene. At this stage, it’s also common to categorize risks by severity depending on how a weakness might impact your organization.
3. Risk Mitigation Planning: Based on the assessment findings, determine what needs to be done before proceeding or what ongoing actions to take. For a new vendor, you might have a policy that certain critical issues must be fixed or compensating controls put in place before you’ll do business with them.
4. Documentation and Risk Acceptance: After completing the analysis and any immediate mitigations, document the results. Good documentation will include the vendor’s risk rating or score, a summary of major findings, and who in your organization has reviewed and approved the risk. This creates an audit trail showing due diligence.
5. Leverage External Assessments and Certifications: In some cases, you might opt for an independent assessment of the vendor. This could mean hiring a third-party security firm to conduct a penetration test of the vendor’s systems or to perform an on-site audit. Many large companies reserve the right to audit a vendor’s security practices. If you exercise this option, you may want to visit the vendor’s facilities to assess physical security and review their backup procedures, among other things. Alternatively, you may rely on third-party certifications and reports: for example, many service providers undergo SOC 2 audits by independent auditors and can share the SOC 2 Type II report with you, which provides valuable insight into their controls.
6. Repeat on a Schedule or Trigger: A single risk assessment gives you a point-in-time view. Best practice is to assess high-risk vendors at least annually, medium-risk vendors perhaps every two years, and low-risk vendors maybe every three years or at renewal time. Additionally, certain triggers should prompt a fresh assessment: if the vendor suffers a security incident, if they implement a major system change, if there’s news of a vulnerability in a product they provide, or if regulations change. Keeping assessments up to date ensures that you catch new risks. Technology can also assist here; some organizations utilize continuous monitoring tools that provide an ongoing “risk score” for a vendor’s external security posture, alerting them to issues such as new vulnerabilities or expired certificates in the vendor’s IT environment.

By conducting thorough risk assessments in this manner, companies create a proactive defense against third-party threats. You gain visibility into your vendors’ security before those weaknesses can be exploited.

Leveraging Third-Party Risk Management Tools and Software

Manually tracking hundreds of vendors with spreadsheets and emails can quickly become overwhelming and error-prone. About 50% of companies still rely on spreadsheets to assess and manage vendor risks, which is akin to fighting a wildfire with a garden hose. To effectively scale a third-party risk program and gain deeper visibility, many organizations are turning to dedicated third-party risk management software solutions. These platforms are purpose-built to streamline and automate the various tasks involved in TPRM.

What can third-party vendor management platforms do that spreadsheets can’t? They centralize all your vendor information in one place – the vendor inventory, risk assessments, security documents, contracts, and performance metrics are stored in a single system of record. This makes it far easier to track the status of each vendor and quickly retrieve information when needed. These tools often come with templates and workflows for conducting assessments. You can send questionnaires through the platform, have vendors upload their evidence, and then score or analyze responses using built-in criteria.

Another advantage is continuous monitoring and integration with threat intelligence. Many third-party risk management platforms integrate with external data sources to provide ongoing risk signals. They might pull cybersecurity ratings so you can see if a vendor’s rating drops due to new vulnerabilities or breaches. They may also integrate news feeds or data breach databases to alert you if your supplier shows up in headlines or leak reports. Some advanced platforms incorporate workflow automation – if a certain risk score goes above a threshold, the system can automatically create a task for an analyst to review or even notify the vendor for an explanation. Best third-party risk management software solutions also facilitate collaboration and accountability. Within the platform, different stakeholders can log in and see the parts of the process relevant to them.

When developing or refining a third-party risk management strategy, organizations should prioritize identifying their most critical data and understanding which vendors have access to it. Establishing robust governance, clear policies, and strong contractual controls is essential for setting expectations and ensuring accountability. Continuous monitoring and regular reassessment of third-party risks help organizations stay agile in the face of evolving threats. Collaboration with vendors, incident response planning, and referencing industry best practices further strengthen defenses. Treating cybersecurity as a shared responsibility with third parties is key to protecting sensitive assets and maintaining business resilience.

Sources

• HIPAA Journal – “More Than One-Third of Data Breaches Due to Third-Party Supplier Compromises” (Mar 28, 2025)hipaajournal.com
• Thomson Reuters (Legal Insights) – “Third-party risk management: An overview” (June 24, 2025)legal.thomsonreuters.com

‍