What Is Third-Party Risk Management?
In today’s dynamic business environment, the use of third-party vendors and service providers is not just common, it’s essential. These external partners play a pivotal role in helping organizations reduce costs, accelerate operations, and remain competitive across all industries. Even a small, family-owned bakery relies on third parties for ingredients, payment processing, internet connectivity, packaging, utensils, and more. Unlike 50 to 100 years ago, when many of these services were nonexistent or handled in-house, modern businesses depend on a vast network of specialized providers to meet operational demands. In an increasingly interconnected marketplace, third-party relationships have become fundamental to business success, enabling growth, scalability, and the delivery of core products and services in the 21st century.
While third-party vendors deliver essential goods and services that enable and facilitate business operations, they also introduce elevated levels of risk. The exchange of sensitive data and proprietary business information is inherent in these relationships, and any unauthorized disclosure could have serious consequences for the organization. As a result, Third-Party Risk Management (TPRM), also known as Vendor Risk Management (VRM), has emerged as a critical component of enterprise risk and cybersecurity programs.
TPRM is defined as the process of identifying, assessing, and mitigating risks associated with external vendors, suppliers, and service providers. It is now considered indispensable for safeguarding business interests and ensuring operational resilience. Although industries such as healthcare and finance tend to place greater emphasis on TPRM due to their regulatory and data sensitivity, the practice is relevant across all sectors.
At a high level, TPRM typically involves a structured review of existing vendor practices and security controls, complemented by contractual provisions that govern vendor responsibilities. These assessments focus primarily on high-risk domains such as information security and data exchange but also extend to areas like physical security and fourth-party risk—where a vendor relies on its own third-party providers. Findings from these evaluations are used to inform remediation plans and contractual obligations, helping to ensure that vendors meet the organization’s risk tolerance and compliance standards. These assessments are generally conducted on a recurring basis to maintain oversight and adapt to evolving risks.
Why Is Third-Party Risk Management Important?
As reliance on third-party vendors continues to grow, so does the associated risk —prompting the introduction and enforcement of regulatory requirements across numerous industries. TPRM is now governed by a variety of regulations and frameworks designed to ensure organizations maintain adequate oversight and control over their external partnerships.
Key regulatory mandates for some sectors and businesses include:
- HIPAA – Requires healthcare providers to implement safeguards for protecting patient data shared with third parties.
- Sarbanes-Oxley (SOX) – Imposes internal control requirements on publicly traded companies, including those involving vendor relationships.
- PCI-DSS – Establishes security standards for organizations that handle credit card transactions, including third-party service providers.
While many of these frameworks have been in place for years, the increasing complexity of digital ecosystems and the surge in supply chain attacks have led to more stringent enforcement and expanded requirements. Regulatory bodies now expect businesses to demonstrate proactive vendor oversight, implement robust risk mitigation strategies, and maintain thorough documentation of their TPRM activities. Non-compliance, especially resulting from third-party breaches, can lead to significant fines, reputational damage, and operational disruption.
While TPRM is a regulatory requirement for certain industries, it is not universally mandated. Nevertheless, it is widely recognized as a business best practice, and neglecting to implement a TPRM program can expose organizations to significant risk. Even companies with advanced cybersecurity infrastructures remain vulnerable if their third-party vendors are inadequately secured.
A prominent example of this occurred in December 2013, when Target experienced one of the most high-profile data breaches in retail history. The breach originated from a compromised third-party HVAC vendor, which allowed attackers to infiltrate Target’s network. Once inside, they accessed the Point-of-Sale (POS) system and stole personal and payment information from over 70 million individuals. The incident resulted in nearly $20 million in settlements, but the reputational damage and erosion of customer trust had far-reaching consequences that extended well beyond financial loss.
While breaches often carry a quantifiable monetary impact, the intangible costs, including brand damage, customer attrition, and loss of stakeholder confidence, can be even more severe. This underscores the critical importance of comprehensive cybersecurity and risk management strategies. Organizations today invest substantial resources into securing their environments, but as the saying goes, “a chain is only as strong as its weakest link.” Failing to apply consistent security standards and controls to third-party vendors can undermine even the most robust internal defenses.
To mitigate this risk, companies should ensure that third-party partners are held to the same cybersecurity standards as internal operations, with regular assessments, contractual safeguards, and continuous monitoring forming the foundation of a resilient TPRM program.
How Did Third-Party Risk Management Function Previously?
During the late 2000s and early 2010s, as TPRM began gaining traction across industries, many initiatives were in their early stages – characterized by reactive, manual, and compliance-driven approaches. These early efforts lacked maturity, integration, and strategic focus that define today’s more advanced TPRM programs.
Early assessments typically relied on manual questionnaires distributed via email, with responses tracked in spreadsheets or siloed databases. The data collected was fragmented and held across decentralized departments, making it difficult to consolidate, analyze, or leverage meaningful insights. Furthermore, the scope of these assessments was often limited to financial and operational risks, with minimal attention paid to data privacy or cybersecurity concerns.
TPRM activities were generally conducted during vendor onboarding and treated as one-time exercises, with little to no ongoing monitoring or follow-up. For many organizations, third-party risk management was viewed as a regulatory checkbox rather than a critical component of enterprise security. This led to programs with weak data integrity, poor visibility, ineffective reporting, and limited remediation protocols.
Despite these shortcomings, early TPRM efforts were not without value. They laid the groundwork for future program development, helping businesses identify gaps and areas for improvement. Over time, these foundational practices evolved into more sophisticated, proactive, and risk-aware strategies, enabling organizations to better safeguard their operations in an increasingly complex and interconnected digital landscape.
How Has Third-Party Risk Management Evolved Recently?
By the mid to late 2010s, growing regulatory pressures and a series of high-profile breaches (including as the Target incident highlighted above) prompted organizations to enhance and mature their TPRM programs. The approach began shifting from reactive and compliance-driven to strategic and risk-focused. Boards of Directors and Senior Leadership became more actively involved in shaping TPRM strategy, with increased expectations for regular reporting and oversight.
Companies began adopting centralized governance models and leveraging standardized frameworks to guide their programs. This evolution led to the widespread use of the Standardized Information Gathering (SIG) questionnaires, both Heavy and Lite versions, which remain core tools in TPRM today. These questionnaires expanded the scope of assessments beyond financial and operational risks to include cybersecurity, data privacy, and reputational concerns.
To further improve efficiency and consistency, organizations started investing in Governance, Risk, and Compliance (GRC) platforms, which marked a significant leap forward in both automation and security standards. Platforms such as OneTrust, AuditBoard, ServiceNow, and ZenGRC enabled businesses to unify their TPRM approach across departments, streamline data collection, and automate key components of the process. These tools also introduced the concept of “continuous assessment,” replacing the outdated one-time onboarding evaluations with ongoing monitoring of vendor risk.
Today, most mature TPRM programs operate within GRC or dedicated TPRM platforms, balancing the need for security and compliance with operational speed and efficiency. However, despite these advancements, many processes remain manual, relying heavily on personnel for launching assessments, conducting reviews, generating reports, and managing remediation efforts.
How Will Third-Party Risk Management Continue to Evolve – Including with the Utilization Of AI?
Today, TPRM programs are rapidly evolving to navigate the dual expectations of increased speed and efficiency while maintaining robust security standards and adhering to increasing regulatory demands. A major driver of this transformation in the TPRM space is the integration of artificial intelligence (AI) and automation technologies, which are reshaping how organizations assess, monitor, and mitigate third-party risks. AI enables real-time, continuous monitoring of third-party vendors, replacing outdated periodic assessments and can analyze vast datasets to detect anomalies, compliance violations, and emerging threats before they escalate from vendors. In addition, AI can assist in automating repetitive manual tasks including data collection, initial risk scoring, and document review, freeing up teams to focus on strategic analysis. This leads to faster onboarding, more consistent assessments, and a reduced human error factor.
Incorporating AI into TPRM programs is not just a technical upgrade, it’s also a strategic move that helps build and sustain trust with both vendors and customers. Vendors appreciate clear expectations and visibility into how their performance is assessed, reducing ambiguity and fostering collaboration, and customers appreciate robust and stringent cybersecurity programs ensuring their data is well-protected. AI-driven evaluations are more objective and consistent than standard evaluations, minimizing bias and human error. This fairness builds trust with vendors who want to be judged on merit, and with customers who expect ethical sourcing and partnerships. By integrating AI governance into TPRM, companies demonstrate a commitment to ethical technology use, including bias mitigation and data lineage controls.
What Is the Ideal Future State for Third Party Risk Management?
As TPRM continues to mature, organizations are proactively transforming their programs to align with emerging standards and future-state expectations. A data-first approach is becoming foundational, enabling companies to aggregate structured and unstructured data from internal systems, external intelligence sources, and vendor disclosures. This centralized data environment supports real-time, context-aware decision-making and shifts TPRM from static, point-in-time assessments toward dynamic, continuous monitoring.
Artificial intelligence is accelerating this evolution. AI-powered TPRM platforms facilitate broader data sharing across ecosystems, allowing third-party information to be centralized not just within a single organization, but across entire networks of businesses. In parallel, companies are beginning to evaluate how their vendors deploy AI, including the governance frameworks that guide its use. This scrutiny enables organizations to assess ethical standards, such as fairness, transparency, and explainability, ensuring responsible data practices throughout daily operations.
TPRM is also expanding beyond traditional concerns of data security and privacy to encompass broader ethical dimensions. Environmental, Social, and Governance (ESG) criteria are increasingly integrated into vendor assessments, with organizations evaluating sustainability practices, labor conditions, environmental impact, and governance transparency during onboarding and ongoing reviews. This shift reflects a growing commitment to responsible and value-driven partnerships.
Efficiency remains a core objective for TPRM programs, but not at the expense of security or integrity. Over the next 5 to 10 years, the discipline will be shaped by rapid technological innovation, evolving regulatory landscapes, and heightened ethical expectations. These advancements will drive greater resilience, transparency, regulatory alignment, and smarter decision-making across third-party ecosystems.
If you’d like to learn more about TPRM, and how Myna Partners can help you implement or enhance the TPRM program at your organization, feel free to reach out to us…
