Build a Winning Third Party Risk Management Program in 7 Steps

Governance, Risk, and Compliance (GRC) frameworks provide an overarching structure for managing an organization’s risk and compliance obligations. TPRM should not exist in a vacuum – it is a specialized extension of your enterprise GRC focusing on external parties. Integrating TPRM with your broader GRC program brings consistency, efficiency, and a more holistic view of risk.

TPRM as an Outward-Facing Component of GRC: In essence, GRC alignment means applying the same rigor to third-party risks as you do to internal risks and using similar processes and tools. If your organization uses an enterprise risk management (ERM) framework like COSO or ISO 31000, incorporate third-party scenarios into that. For example, if one of your enterprise risks is “data breach,” your risk registers and controls should include the possibility of a breach via a vendor, and the controls you have (like vendor due diligence, contracts, etc.) to mitigate that. A GRC program typically has unified risk assessment methodologies, scoring criteria, and reporting structures – ensure that your TPRM uses those where possible. This avoids “two languages” of risk in the company. As one expert put it, TPRM is an outward-facing subset of risk that extends your internal GRC processes to the supply chain. This means, for instance, the same risk appetite for downtime that you have internally should apply to key vendors providing IT services.

Policy and Control Framework Mapping: Map your third-party risk controls to your primary control framework. Many organizations have a master control library (maybe based on NIST CSF, ISO 27001 Annex A, COBIT, etc.). Identify which controls are fulfilled by third parties or are about third-party oversight. For example, ISO 27001 has a control domain for supplier relationships (A.15 in ISO 27001:2013) which mandates security requirements be agreed with suppliers – your TPRM process meets that control. If you use NIST Cybersecurity Framework, the “Supply Chain Risk Management (ID.SC)” category would be addressed by your TPRM program. Doing this mapping helps during audits or certifications – you can show that third-party controls are part of your overall control environment. It also helps ensure no gaps: if your internal policy says all critical systems need annual DR tests, then if a critical system is operated by a vendor, that vendor should perform a DR test annually too – and you should get evidence of it. Aligning control frameworks ensures such requirements are extended to third parties logically.

Leveraging GRC Technology: Many companies utilize GRC technology platforms (e.g., MetricStream, RSA Archer, ServiceNow GRC, LogicGate, etc.) to manage risk assessments, controls, and compliance activities. It’s beneficial to incorporate TPRM into these tools. For example, if your GRC tool has a risk register module, include third-party risk entries. If it has a compliance module, track compliance requirements that are fulfilled by vendors (like PCI compliance by your payment processor). Some GRC suites have dedicated vendor risk management modules or you can integrate a specialized TPRM system with the GRC system. The integration allows for a single source of truth for risk data and avoids duplication. Imagine a dashboard where a risk manager can see both internal audit findings and vendor assessment findings in one place – that gives a complete risk picture. It also aids workflow: a finding from a vendor assessment can be treated similar to an internal audit finding, assigned to owners, and tracked to resolution in the same manner.

Unified Reporting and Escalation: Integration means that third-party risks follow the same escalation paths as other risks. If a critical risk is identified (whether internal or via a vendor), it should trigger the same response – maybe it goes to a senior risk committee or requires a management action plan. Some organizations establish risk thresholds so that, for instance, any vendor risk rated “High” must be approved by the Chief Risk Officer, akin to how any internal project with high residual risk needs approval. By doing this, you ensure third-party issues are not given a pass simply because “that’s the vendor, not us.” Remember, regulators often treat outsourcing as extension of the bank/organization itself, meaning you are accountable for the vendor’s risk as if it were your own. A unified GRC approach reinforces that accountability.

Consistency in Risk Culture: Embedding TPRM in the GRC framework also promotes a consistent risk culture. Employees and managers will come to see that engaging a supplier requires the same mindfulness as embarking on an internal project. It’s all part of the company’s risk-taking activities. For instance, if your culture is risk-averse in certain areas (say, zero tolerance for compliance violations), that should reflect in your third-party choices and requirements (you wouldn’t onboard a vendor with a history of compliance issues, and you’d perhaps audit key compliance controls of vendors annually). On the other hand, if your company takes calculated risks for innovation, you might accept a startup vendor with less maturity but with compensating controls. The key is making those decisions deliberately and in line with overall risk appetite. A connected GRC program facilitates discussions like: “Is outsourcing this function within our risk appetite? Does it introduce risks we said we wouldn’t take?” You might involve the same risk committee to approve a major outsourcing as would approve a major capital investment, because both have risk/reward considerations.

Extending Compliance Management: Many compliance requirements extend to third parties. Integration with GRC ensures that compliance officers track vendor-related controls. For example, under Sarbanes-Oxley (SOX), if a third-party service impacts financial reporting, you need controls around that vendor (maybe a SOC 1 report) and your auditors will want to see it. Under GDPR, if you use a data processor, you must conduct due diligence and have a proper contract – your privacy compliance team should get evidence of those steps via the TPRM program. A joint inventory of all third parties that handle personal data might be maintained between the privacy team and TPRM. Similarly, anti-corruption compliance (FCPA, UK Bribery Act) often mandates due diligence on third-party intermediaries – which could be handled in conjunction with the TPRM process. An integrated approach prevents compliance tasks from being done in silos by different teams; instead, a centralized team can coordinate or at least share information. Many organizations build a “360-degree view” of third-party risk and compliance requirements in their systems, so that for each vendor you can see not only the risk assessment but also any regulatory or contract requirements associated with them.

Incident Coordination: When incidents happen, having TPRM in the GRC framework helps in coordinated response. For example, a data breach at a vendor triggers not just vendor incident plans but also feeds into your internal incident management and potentially legal/regulatory notification processes (which may be governed by your internal IRP – incident response plan). If you treat vendor incidents as part of your enterprise incident metrics (which you should), it gets the same level of attention in after-action reviews and remediation tracking.

In short, the boundary between internal and external risk management should be seamless. As the Centraleyes guidance noted, GRC processes should be extended to include third-party relationships. Doing so increases efficiency (no reinventing the wheel for TPRM) and improves risk coverage (fewer things slip through cracks). It also sends a message externally – for example, some firms publish that they adhere to certain standards even in their supply chain, which can boost trust with clients and regulators.

One practical tip: cross-train some team members or have joint workshops between the internal risk/audit team and the TPRM team. Share methodologies so each side understands the other. Perhaps involve internal audit to periodically review the TPRM program itself, just as they audit other risk functions. This integrated mindset will ensure your TPRM program remains aligned to the business’s risk objectives and can adapt as those objectives change.