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Navigating third-party risk assessments in the digital era: A technology leader’s perspective

by Tejas Ranade on February 18, 2025

These days, businesses lean heavily on third-party vendors to boost efficiency and bring fresh ideas to the table. But with that reliance comes risk — from data breaches to compliance issues to disruptions that can ripple through your entire operation. That’s why it’s so important for technology leaders to put strong Third-Party Risk Assessments (TPRAs) in place. It’s not just about checking a box — it’s about understanding where you’re vulnerable and taking steps to protect your business.

Understanding third-party risk assessments

A Third-Party Risk Assessment is a systematic process that evaluates the potential risks associated with engaging external vendors or service providers. This assessment encompasses various risk domains, including cybersecurity threats, compliance obligations, financial stability, and operational reliability. The primary objective is to gain a comprehensive understanding of a third party’s risk profile to make informed decisions and implement appropriate safeguards.

The growing importance of TPRAs

The significance of TPRAs has escalated in recent years due to several factors:

Increased regulatory scrutiny: Regulatory bodies worldwide are enforcing stringent compliance requirements related to third-party engagements. Non-compliance can result in substantial fines and reputational damage.
Rise in cyber threats: Third-party vendors can serve as entry points for cyberattacks, leading to data breaches and operational disruptions. A recent study revealed that 61% of companies experienced a third-party data breach or cybersecurity incident in the past year.
Prevalent
Operational complexities: The integration of third-party services introduces complexities that can affect service delivery and business continuity if not properly managed.

Key components of an effective TPRA

To establish a robust TPRA framework, consider the following components:

Comprehensive risk identification: catalog all third-party relationships and identify potential risks associated with each, considering factors such as data access, criticality of services, and regulatory implications.
Risk evaluation and scoring: Assess the identified risks to determine their potential impact and likelihood. Assign risk scores to prioritize mitigation efforts effectively.
Due diligence processes: Conduct thorough due diligence before engaging with third parties, including evaluating their security practices, financial health, and compliance status.
Continuous monitoring: Implement ongoing monitoring mechanisms to track third-party performance and promptly identify emerging risks or compliance issues.
Incident response planning: Develop and maintain incident response plans that include protocols for addressing issues arising from third-party relationships.

Industry insights: The expanding TPRA market

The growing recognition of third-party risks has led to a significant expansion in the TPRA market. According to a report by Grand View Research, the global third-party risk management market size was estimated at USD 7.42 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 15.7% from 2024 to 2030.

Source: Grand View Research

This growth is driven by the increasing complexity of business ecosystems and the rising number of cyber threats, underscoring the critical need for effective third-party risk management solutions.

Implementing a TPRA framework: Best practices

To effectively implement a TPRA framework, technology leaders should consider the following best practices:

Establish clear policies and procedures: Develop and document policies that define the TPRA process, roles, and responsibilities within the organization.
Leverage technology solutions: Utilize advanced TPRA tools and platforms that offer automation, real-time monitoring, and analytics to enhance assessment efficiency and accuracy.
Foster cross-functional collaboration: Engage stakeholders from various departments, including IT, legal, procurement, and compliance, to ensure a holistic approach to third-party risk management.
Provide training and awareness: Educate employees about the importance of third-party risk management and their role in maintaining the integrity of the TPRA process.
Regularly review and update assessments: Periodically reassess third-party risks to account for changes in the business environment, regulatory landscape, and the third party’s circumstances.

While third-party collaborations are integral to business success, implementing a robust third-party risk assessment framework is essential. By proactively identifying and mitigating risks associated with external partnerships, organizations can safeguard their operations, ensure compliance, and maintain stakeholder trust. As technology leaders, it is our responsibility to champion comprehensive TPRA practices that not only protect our organizations but also contribute to the resilience and integrity of the broader digital ecosystem.