Third-Party Risk Management (TPRM) is essential not just for mitigating risks associated with external vendors, but also for ensuring that internal business teams are functioning effectively and securely. However, managing third-party risks can present several challenges that organizations need to address strategically. Below are some common challenges in TPRM and suggestions on how to overcome them.
1. A Narrow “Business-Only” Focus
Business teams often prioritize profitability and operational efficiency over risk management, which can leave the organization vulnerable. Many teams may not fully understand the potential risks that come with outsourcing, especially when it involves new technology or critical infrastructure support. The challenge here lies in the fact that business decisions can be made without considering the full spectrum of risks involved, which might include cybersecurity threats, regulatory non-compliance, or operational disruptions.
Solution:
To address this, businesses need to foster a culture of risk awareness. Regular training sessions, transparent communication about risks, and collaboration between business units and risk management teams can help bridge the gap. Additionally, integrating risk considerations into the early stages of business decision-making processes ensures that the team takes a holistic approach, balancing operational needs with risk mitigation.
2. Reactive Oversight Instead of Proactive Management
Another common challenge is that many organizations tend to react to risks only after an incident, such as a data breach, has already occurred. This reactive approach often leads to more significant damage because threats are not identified or mitigated in a timely manner. Focusing only on post-incident responses can expose organizations to unnecessary risks, legal issues, and reputational damage.
Solution:
The key to overcoming this challenge is to move from reactive to proactive risk management. Organizations should establish strong, proactive risk management frameworks that include rigorous due diligence before onboarding third-party vendors. Regular assessments and continuous monitoring of third parties are essential. Implementing automated systems that can track and analyze risks in real-time can help organizations stay ahead of potential threats. Regular audits, compliance checks, and updating risk management strategies in line with emerging trends will ensure risks are handled before they escalate into larger issues.
3. Lack of Centralized Vendor Risk Data
One of the key issues organizations face is siloed data and inconsistent risk management practices across departments. When vendor risk information is scattered across multiple platforms or teams, it becomes difficult to assess risk comprehensively. This can lead to gaps in understanding the true risk profile of third-party relationships.
Solution:
Implementing a centralized, unified TPRM platform is crucial. Such a system should provide a single source of truth, allowing teams to access and manage vendor information, compliance reports, risk assessments, and performance metrics in one place. This helps create consistency and clarity across the organization, enabling better decision-making.
4. Inadequate Due Diligence During Vendor Onboarding
Organizations sometimes rush through the vendor onboarding process, especially under pressure to meet business demands. This haste often results in incomplete risk assessments, increasing the likelihood of working with vendors that may not comply with security, legal, or operational standards.
Solution:
Developing a standardized due diligence process is key to overcoming this challenge. This process should include in-depth risk evaluations, legal checks, security reviews, and performance assessments for all vendors before they are approved. Leveraging technology to automate parts of this process, such as background checks or compliance validation, can help reduce time while ensuring thoroughness.
5. Overreliance on Questionnaires
Many organizations rely heavily on vendor questionnaires to assess third-party risks, but these self-reported answers are often incomplete or biased. Vendors may unintentionally or deliberately underreport their risks, leaving the organization vulnerable.
Solution:
Organizations need to supplement questionnaires with external data sources and independent verification tools. Third-party monitoring services that provide real-time updates on vendor risk, including cybersecurity ratings and financial health assessments, can offer a more accurate picture. Regularly validating vendor responses and requiring additional evidence for critical risks ensures that risk assessments are more reliable.
6. Poor Incident Response Coordination
Even with proactive measures, incidents will still occur. However, many organizations struggle with poor coordination and communication between teams when addressing vendor-related issues, leading to delayed or ineffective responses.
Solution:
Developing a clear incident response plan specifically tailored to vendor-related risks is essential. This plan should outline the roles and responsibilities of all teams involved, including business, IT, legal, and risk management. Regular simulations and training on how to respond to third-party incidents will help ensure that teams can act quickly and effectively when an issue arises.
Effective Third-Party Risk Management requires a combination of risk awareness, centralized oversight, proactive management, and strong vendor relationships. By addressing these common challenges—such as lack of centralized data, inadequate due diligence, and overreliance on self-reporting—organizations can build a more resilient TPRM strategy. Embracing technology, streamlining processes, and fostering interdepartmental collaboration are crucial steps in ensuring that third-party risks are managed effectively, minimizing both operational disruptions and reputational damage.
Blogged by
Parth Lata
Dynamic TPRM Expert and Blogger.
