Unlocking Profitability with Third-Party Risk Management: A Myth or Reality?

By Munish Gupta

In today’s digital ecosystem, organizations rely heavily on external products and services and this engagement remains the key business driver for them. Yes, with cost pressures and competency demands, businesses do not choose to invest in developing everything in-house but rather outsource some services to diverse third parties.

The Myth of Cost Reduction without Risks

This interdependence between organizations and their third-party partners is growing rapidly across industries.  Then, can Third-Party collaborations be profitable?  This strategic dependence aims to optimize operations, enhance efficiency, and cost reduction, and foster technological advancements.  While this collaborative approach offers multifaceted benefits to organizations, it also exposes them to high risks, particularly data breaches, cyber threats, and regulatory compliance challenges that can impact the organization’s profit or bottom line in the long run.  The escalating trend of outsourcing and the occurrence of vendor outages contribute to vulnerabilities within the supply chain.  There are several instances where third-party vendors and their affiliates conclude their work without appropriately revoking access, including passwords and other credentials.  Such oversights lead to security breaches jeopardizing operation continuity, regulatory compliance, customer trust, financial stability, and brand reputation.

Third-Party Risk Management (TPRM) offers a strategic advantage

The aftermath of such incidents is seen across multiple dimensions, including the financial burden associated with addressing third-party incidents.  According to a September 2022 survey conducted by Gartner, 84% of the 100 executive risk committee members polled acknowledged that operational disruptions were a prevalent outcome of ‘misses’ in third-party risk management.

Acknowledging the seriousness of third-party risks, regulatory bodies are increasingly imposing stringent regulations and enhanced scrutiny. In response, organizations are compelled to establish robust and comprehensive TPRM Programs.  Take, for instance, a global petrochemical giant that grappled with cybersecurity challenges, particularly in maintaining a secure Operational Technology environment.  Concerns arose over third-party vendors accessing the plant’s Industrial Control Systems (ICS) network for support and maintenance, without the presence of a 24/7 threat detection response service.  Implementing a TPRM strategy proved pivotal for the organization.  It facilitated real-time visibility into the ICS environment, enabling proactive monitoring and swift responses to potential threats.  This TPRM approach not only enhanced operational resilience but also safeguarded profitability.  Similar security challenges are pervasive across various industry verticals, including, BFSI, IT/ITeS, Manufacturing, and others.  Organizations in these sectors have witnessed significant benefits from TPRM solutions, contributing substantially to their sustained profitability.

New-age organizations, at the forefront of technological integration and market responsiveness, are setting the pace for the evolution and expansion of TPRM practices.  This emphasizes the imperative for businesses to not only meet regulatory requirements but also to proactively manage and mitigate the risks associated with their diverse network of external partnerships.

Overcoming TPRM Challenges and Adopting a Holistic Approach

While the benefits of the TPRM approach are evident, implementing a successful strategy has its challenges.  Primary organizations have to deal with several vendors who also have other subcontractors contributing to the complexity of vendor networks. This complexity in vendor relationships adds more layers of challenges to the task of managing third-party networks.  The decentralized systems and unstructured third-party monitoring processes are a challenge for organizations to effectively monitor their third parties.  Organizations also lack direct control over security measures implemented by third-party or external partners.   The growing adoption of cloud services and outsourcing of crucial tasks lead to the expansion of attack surface prompting a comprehensive approach to risk management.  Organizations must overcome challenges by viewing TPRM as a holistic business practice and not just a mere compliance requirement.

To manage the growing risks, organizations must use superior continuous monitoring solutions beyond point-in-time assessments.  Unmanaged risk can be reduced by automating the TPRM process which also enhances efficiency and precision in risk mitigation efforts and provides inputs in real-time, enabling management to make informed decisions.

Components of an effective TPRM framework

Opting for trustworthy third-party vendors is a must by conducting thorough background checks.  Assessments should include evaluating their cybersecurity policies and incident response capabilities. It is crucial to standardize the TPRM framework across the organization to ensure consistency in managing third-party risks.  The framework should also align with the organization’s business goals.  Organizations must regularly audit and access their TPRM program to ensure ongoing compliance with security standards and keep pace with the constantly evolving threat landscape.  Continuous monitoring of third-party activities will help to promptly detect and respond to security incidents.

Organizations need to have a holistic TPRM framework to address the below points vital for the success of the TPRM program

• Visibility: To assign resources for establishing robust vendor discovery, mapping, and segregation based on criticality, along with regularly assessing the current threat posture.
• Risk outcomes: To adopt automation and continuous monitoring mechanisms for vendors, enabling organizations to make informed decisions based on real-time insights.
• Reporting: To establish an effective reporting mechanism for assessing vendor health and tracking corrective actions.
• KPI Measurement: To quantify the risks across vendor ecosystems and define clear KPIs for monitoring and assessment efforts.
• Productivity: TPRM programs can be tedious and resource-intensive, emphasizing the need to invest in technology and automation.
• Fourth-party risk management: Moreover, businesses need to go beyond third-party risks and to also focus on the fourth-party risks aspects as well. Organizations need to ensure that fourth-party risk management is the core part of their vendor risk management initiatives. Adopting a risk-based approach to vendor oversight is crucial to mitigate the risks arising from third and fourth parties.

The idea that TPRM is not favorable to profitability is a myth that has been debunked.  Organizations must recognize that TPRM is a proactive and indispensable component in the continuously evolving robust cybersecurity strategies.  By doing so, organizations can realize the complete potential of their partnerships, ensuring that profitability remains intact without being jeopardized by unmitigated risks.

(The author is Munish Gupta, President & Global Head for Cybersecurity Advisory, Inspira Enterprise, and the views expressed in this article are his own)