Why is Third-Party Risk Management Important?

Third-party risk management (TPRM) is the process an organization implements to manage risks that are a result of business relationships with third parties that are integrated into their IT environment and infrastructure. These risks can be operational, cybersecurity, regulatory, financial, and reputational. According to a survey from Cyber Risk Alliance, the average organization uses 88 IT third parties (including software and service providers, partners, external contractors, agencies, suppliers, and vendors), and larger organizations can rely on nearly twice as many (175) third parties. The stakes are rising. In 2023, 61% of companies experienced a third-party data breach or cybersecurity incident, a 49% year-over-year increase, highlighting how increasingly vulnerable these external relationships have become. Another study found that 41% of organizations experienced an impactful third-party breach in just the past year, underscoring the growing urgency of better risk management. This pressure is compounded by intensifying regulatory scrutiny. In 2023, the EU’s NIS2 Directive expanded mandatory cybersecurity obligations to more sectors, while the Digital Operational Resilience Act (DORA) sets strict oversight rules for third-party ICT providers in finance. Regulations like GDPR, HIPAA, and PCI DSS also demand that companies ensure their vendors comply with data protection and security controls. Ultimately, TPRM isn’t just about compliance, it’s a cornerstone of business resilience, brand protection, and operational continuity.

What are the Most Common Third-Party Cyber Risks?

Third-party risks include: Cybersecurity risk such as data breaches, phishing, DDoS attacks, or ransomware; Operational risk due to disruptions from third parties; Financial risk from supply chain mismanagement or service delays; Strategic risk from market misalignment; Regulatory and Compliance risk, where vendors may breach regulations like HIPAA or GDPR; Geopolitical risk from unstable regions; and Reputational risk if a third party's failure damages your brand's trust and reputation.

What are the Governance and Foundations of Third-Party Risk Management?

TPRM requires clear governance structures, defined accountability across IT, compliance, procurement, and security teams, and a mature policy framework for risk classification, vendor assessment, breach response, and reassessment. It includes cross-functional collaboration and often involves oversight committees, with board-level engagement essential due to regulatory pressures and reputational stakes.

What Are the Key Elements of Third-Party Risk Management?

Key steps include: mapping the vendor ecosystem, assessing risks, categorizing and prioritizing those risks, ensuring regulatory compliance, and preparing incident response plans for breaches or other incidents.

What Are the 5 Phases of Third-Party Risk Management?

The 5 phases are: Due diligence, Vendor risk assessment, Onboarding, Risk remediation and mitigation, and Continuous monitoring.

What are the Benefits of Third Party Risk Management?

Benefits include cost reduction by preventing breaches, regulatory compliance assurance, improved knowledge and confidence in vendor networks, and overall risk reduction through better insight and proactive monitoring of third and fourth parties.

What are the five steps essential to third party risk management?

The five steps are: 1. Analysis of vendor risk; 2. Engagement to remediate gaps; 3. Remediation by the vendor; 4. Approval or rejection based on risk tolerance; 5. Ongoing Monitoring for cyber gaps.

What is an example of a third party risk management framework?

An example is the NIST Cybersecurity Framework (NIST CF), a voluntary set of standards used by organizations of all sizes and industries to strengthen their cybersecurity programs.

Why is third party risk management important?

Third party risk management is essential because organizations increasingly rely on third parties, making them vulnerable to supply chain attacks like MoveIt and Applied Materials. As third-party networks grow complex, TPRM ensures legal, operational, and cybersecurity risks are mitigated.

What is third party cyber risk management (TPCRM)?

TPCRM focuses on managing cyber risks through threat intelligence, continuous monitoring, breach remediation, and is used by CISOs, TPRM teams, and compliance departments.

What is the difference between TPRM and TPCRM?

TPRM covers a broad range of risks (financial, legal, cyber, reputational, strategic, operational, geopolitical), while TPCRM focuses specifically on managing cybersecurity risks within third-party relationships.

Panorays’ Blog

Articles by Dov Goldman

Q: What is third party risk management?

Third party risk management is a process designed to review third parties for their current security practices, their role in your organization, and their overall sustainability. It includes the controls put in place to minimize operational, financial, reputational, and cybersecurity risks posed to your organization.

Learn about the latest research and happenings in TPCRM

Dov Goldman - VP of Risk Strategy @ Panorays

Dov is a serial entrepreneur who’s been involved with third-party programs of all sizes, and is the go-to person for explaining the difference between inherent and residual risk.

Expertise

Dov is a seasoned entrepreneur, navigating the world of startups with finesse. With a knack for breaking down the nuances of third-party risk management, he’s your ultimate guide in explaining inherent versus residual risk. Armed with years of expertise, Dov will untangle the intricacies of risk assessment and demystify the complexities of third-party risk.

Experience

Throughout his extensive career as a technology entrepreneur, Dov has emphasized the human dimension of implementing IT systems and the pragmatic necessity of delivering tangible business outcomes. With decades of experience spanning multiple startups, Dov has collaborated closely with cyber and risk leaders across numerous large enterprises, specializing in third-party risk management.

Cybersecurity Authoritativeness

Dov has earned recognition as a thought leader, adept at simplifying intricate problems and their resolutions into easily understandable terms. Regarded as the ‘third-party therapist’ within the industry, Dov possesses an intuitive understanding of the challenges faced by third-party risk leaders. His engaging speaking engagements and insightful written pieces captivate audiences, blending entertainment with informative content.

Dov has written and been quoted about third party cyber risk and privacy in various papers, cybersecurity news publications, websites and resources, including:

Transforming third party risk management, CeFPro iNFRONT Magazine, Sept 2023
Survey Roundup: Third-Party Breaches Batter Businesses, The Wall Street Journal, Oct 2017
4 Key Values of the New NIST Privacy Framework, Corporate Compliance Insights, March 2020
Compliance Takeaways from 5 Third-Party Data Breaches in 2019, Corporate Compliance Insights, Oct 2019
Opus & Ponemon Institute Announce Results of 2017 Third Party Data Risk Study: 56% of Companies Experienced Data Breach, Yet Only 17% are Prepared to Mitigate Risk, Sept 2017
Opus and Grant Thornton Team Up to Help Understaffed Risk Departments, Oct 2018
Tools for Assessing Third Party Info Security Risk: Using the New OCEG Playbook, Dec 2018
Dov Goldman and Richard Saville of Opus discuss the future of data and regulation, Asset Servicing Times, June 2018

Dov has spoken at and chaired numerous industry events, including recently:

ISF World Congress, Oct 2023
GRF Summit on Security & Third Party Risk, Oct 2023
CEFPro Vendor & Third Party Risk, June 2023
teissLondon2023 | The European Information Security Summit, Feb 2023

Dov has a number of patents to his name, including one for the design of a third-party cyber risk module:

Patent holder: Controls Module, June 2018

Education

Dov graduated from Columbia University in New York with a degree in Computer Sciences. His time there was more than just academics—it was a transformative period where he honed his skills and immersed himself in tech competitions and workshops. Columbia equipped him not only with technical expertise but also instilled in him a relentless drive for excellence that defines his career.

Articles by Dov Goldman

Expertise

Experience

Cybersecurity Authoritativeness

Education

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