What is TPRM?

Modern organizations increasingly rely on third-party vendors and outsourced services for their infrastructure and software supply chain. While these third-party relationships achieve operational efficiencies (e.g., better tools, reduced hardware costs, process automation, etc.), they also introduce potential data protection risks to consider: 

• Privacy Angle: The types of data the system or service will utilize, how, why, and whether there may be any out-of-context or high-risk uses
• Security Angle: Whether the third party has a strong security posture and trustworthy ecosystem for personal and other company information to prevent cyberattacks
• Legal Angle: Whether data protection and service delivery aligns with applicable regulatory requirements and associated contractual commitments

Third-Party Risk Management (TPRM) refers to the processes, strategies, practices, and workflows that organizations implement to identify, assess, monitor, and mitigate the risks posed by their third-party vendors, suppliers, partners, and service providers. 

TPRM’s importance is growing as modern businesses continue to rely on external parties to provide goods, services, and critical functions. TPRM involves conducting thorough due diligence during vendor selection to assess potential third-party business partners’ compliance efforts, security practices, financial stability, and overall risk profile and posture. 

Starting before onboarding and continuing through the partnership lifecycle, ongoing monitoring and assessments are essential to ensure vendors continually meet your organization’s standards and regulatory compliance requirements. TPRM safeguards against a range of risks, including cybersecurity issues, data breaches, compliance violations, reputational damage, and business continuity gaps. 

An effective TPRM program helps organizations proactively identify and address potential risks associated with third parties to ensure security, resilience, and operational continuity within the broader supply chain. TPRM is essential for maintaining trust with customers, stakeholders, and regulatory bodies, as well as safeguarding your organization’s reputation and overall business objectives.

What Is Third-Party Data?

Third-party data refers to information collected and aggregated by external entities separate from the primary data owner and data user. These external entities may be data brokers, data vendors, or other data providers that collect data from various sources like websites, mobile apps, surveys, and public records. 

Third-party data is typically sold or licensed to businesses and organizations for various purposes, including targeted advertising, market research, and customer profiling. Since the data is gathered independently of the primary data user, it may lack specific context or direct relation with the individuals represented in the data.

What’s the Difference Between Third-Party Data and Fourth-Party Data?

Fourth-party data is a step beyond third-party data in terms of the data supply chain. In this context, fourth-party data refers to the data shared or exchanged between third-party data providers. 

Essentially, fourth-party data is the information a data provider acquires from another third-party data provider and passes on or resells to other entities. This exchange enables companies to access extensive datasets or specialized data that may not be directly available from a single third-party provider. However, as the data passes through multiple intermediaries, it may become less reliable or face potential privacy risks.

The key difference between third-party data and fourth-party data is the stage of data aggregation and distribution in the supply chain. External entities collect third-party data and fourth-party data is the data shared or resold between third-party data providers.

Understanding the distinction is crucial for organizations engaging in data-driven practices to make informed decisions about data outsourcing, regulatory compliance, and the quality of data they use.

What Are the Potential Risks a Third-Party Vendor Could Introduce?

• Compliance Risk: Third-party vendors may not adhere to the same compliance standards as the primary organization, leading to potential violations of regulatory requirements. This can result in legal penalties, fines, and reputational damage.
• Reputational Risk: If a third-party vendor engages in unethical or irresponsible practices, it can damage the reputation of partnering organizations. Negative publicity, customer distrust, and brand damage may occur, affecting the company’s long-term success.
• Financial Risk: Depending heavily on third-party vendors for critical functions can expose a company to financial risk. Sudden price increases, unexpected service disruptions, or vendor insolvency can disrupt operations and lead to financial issues.
• Information Security Risk: Third-party vendors may handle sensitive data or have access to internal systems. If vendors lack robust security measures, data breaches or cyberattacks could compromise the confidentiality and integrity of the company’s information.
• Operational Risk: Relying on third-party vendors for essential services or products introduces operational risk. If a vendor fails to meet expectations, it could disrupt organizational processes, cause delays, and impact overall productivity.
• Compliance Risk: A third-party vendor‘s noncompliance with regional data protection laws, industry standards, or contractual agreements may lead to legal disputes and contractual penalties.
• Inherent Risk: The inherent risk of a third-party vendor refers to the level of risk associated with the nature of the vendor’s operations. For example, vendors located in politically unstable regions or those with inadequate disaster recovery plans may pose higher inherent risks.
• Vendor Dependency Risk: Overreliance on a single third-party vendor or a limited pool of vendors can create dependency risks. If a vendor faces financial difficulties or goes out of business, companies may struggle to find suitable alternatives quickly.
• Quality Control Risk: The quality of products or services a third-party vendor provides may not meet the company’s standards, leading to dissatisfied customers and potential legal issues.
• Ethical Risk: Third-party vendors may not align with a company’s ethical values, leading to conflicts and potential backlash from stakeholders, including employees, customers, and investors.

To mitigate these risks, companies should implement robust due diligence processes when selecting third-party vendors, conduct regular risk assessments, monitor vendor performance, establish clear contractual terms covering compliance and security, and maintain contingency plans to address potential issues.

Continuous oversight and communication are crucial for managing and minimizing the risks vendors introduce.

Third-Party Risk Management Processes

When managing a third-party supply chain, organizations of any size must understand and identify risks posed to their information assets. Any weaknesses in a third party’s data protection posture will affect the organization’s ability to safeguard customer data. 

Areas requiring careful consideration include:

• The criticality of the vendor’s services to your business operations
• The necessity of the corporate or end-customer personal information the vendor would receive or gain access to
• Whether data will be transferred or accessed from another jurisdiction
• Whether the vendor’s technical and organizational measures are adequate for providing the required service level
• Whether the vendor can commit to service level agreements including support with privacy rights (data subject) requests and timely security incident notifications

Ideally, your organization’s third-party security and privacy risk management policies will define these and other areas requiring due diligence when reviewing existing partners or starting the procurement process for new vendors.

NIST Risk Management Framework

A leading international framework to consider adopting is the National Institute of Standards and Technology’s (NIST) Risk Management Framework (RMF). NIST also promotes frameworks focused on Cybersecurity and Privacy management. Together, RMF, CSF, and PF provide a uniform language and interoperable methodology for supporting organizational programs.

The NIST’s RMF is a comprehensive and structured approach to integrating and managing security, privacy, and cybersecurity supply chain risk within an organization’s ecosystem. It provides a systematic process for identifying, assessing, mitigating, and monitoring risks to ensure security and resilience for information systems and data. The RMF consists of seven distinct steps:

1. Prepare: The first step for beginning a new vendor business relationship is preparing all levels of an organization to manage privacy and security risks with the RMF. This includes things like identifying risk management roles, determining types of risk and risk tolerance levels, assessing wider organizational risk, and solidifying management strategies.
2. Categorize: In this step, the organization identifies and categorizes its information systems and data based on their importance to the organization’s mission and the potential impact of security breaches. This helps in understanding the risk landscape and resource prioritization.
3. Select: Once the systems and data have been categorized, the organization selects the appropriate security controls from the NIST Special Publication 800-53. These controls are tailored to the specific needs and identified risks of the organization.
4. Implement: Implement the selected security controls across the organization’s information systems and data. This involves deploying technical measures, policies, procedures, workflows, and other safeguards to protect against potential threats.
5. Assess: Evaluate the implemented security control effectiveness through a comprehensive assessment process. The organization performs security testing and risk assessments to identify vulnerabilities and ensure controls are functioning as intended.
6. Authorize: Using the assessment results, the organization determines the risk levels associated with its information systems and data. This determination assists in making informed decisions about authorizing the system for operation or recommending further actions to address weaknesses.
7. Monitor: The final step involves continuous monitoring of the information systems and data to ensure security controls remain effective over time. This step includes ongoing risk assessments, security status monitoring, and periodic reassessment to adapt to changes in the organization’s environment or threat landscape.

The NIST RMF provides a structured and adaptive system for managing security, privacy, and cybersecurity risks, and allows organizations to better protect their assets, data, and operations from potential vulnerabilities.

Why Is Building a Third-Party Risk Management Program Important?

TPRM is vital for addressing the operational risks you don’t yet know about or understand. When your organization must keep individuals’ data secure and meet data protection compliance requirements, a lack of oversight can lead to severe consequences. 

For example, businesses subject to the California Consumer Privacy Act (CCPA) must ensure data collection and processing activities don’t exceed the scope originally disclosed to the consumer. Doing this without visibility is virtually impossible.

In addition, when businesses partner with third-party service providers and new vendors, they’re integrating them with the rest of their Information Technology ecosystem and infrastructure. During onboarding and throughout the lifecycle — including offboarding — It’s sound business practice to ensure partners are credible, adhere to necessary privacy and security standards, and deliver strong performance.

Via TPRM processes, businesses can thoroughly evaluate their third-party partnerships ahead of contractual commitments and implementation, and throughout the relationship. In addition to meeting compliance and ethical obligations, TPRM helps your business make better, more informed decisions.

TPRM and Privacy Management: Complementary Practices

Privacy risk management is tightly intertwined with TPRM practices. Businesses are tasked with ensuring the privacy, security, and integrity of consumer data.

For example, a fundamental aspect of TPRM is ensuring that the necessary contractual agreements are signed and each party understands its roles and responsibilities. Per GDPR, PIPEDA, CCPA, and other privacy laws, organizations must establish contracts with their third-party service providers detailing:

• The personal information a business discloses to the third party for limited, specified purposes
• Responsibilities and accountability for mishandling (or misprocessing) personal information according to the same standards the business is held to
• The business’s right to evaluate the third party’s technical and organizational safeguards through processes like audits
• The third party’s duty to notify the business if it can no longer meet its statutory or contractual obligations
• The business’s right to stop and remediate a third party’s noncompliant activities or privacy and security standards

Where do TPRM and privacy management intersect or complement each other most?

Third-Party SaaS System Discovery

As noted in the RMF steps above, organizations must first understand where the personal and sensitive information they collect from consumers is stored. 

Third-party partnerships can complicate these tracking efforts if the business lacks a dedicated solution like DataGrail’s Live Data Map, which handles real-time, automated system detection.

Third-Party Vendor and System Inventorying

Organizations also need to know what and how much personal and sensitive information third-party environments and systems hold. 

Building that inventory starts with knowing the data’s location, but it should include capabilities like searching for 10- and 16-digit numbers like social security and credit card numbers.

Personal Data Discovery and Mapping

Taking a snapshot of where, what, and how much personal information third-party service provides process or retain only helps an organization once. Ongoing TPRM still requires:

• Continuous Mapping: As third parties process information and conduct other activities, they may move an individual’s personal information and thus remove visibility once again.
• Discovery Capabilities: Throughout a partnership lifecycle, businesses will disclose more personal information to third parties. Businesses must continually track and monitor any new data they share with partners.

Documenting a Third Party’s Role and Processing Activities 

A business should be knowledgeable about its third-party partners’ roles and data processing activities. This helps ensure:

• Thorough, pre-partnership vendor risk assessments and service provider evaluations 
• Accurate privacy risk assessments and regulatory compliance reporting
• Third-party lifecycle performance monitoring

Conducting Privacy Risk Assessments (DPIAs/PIAs)

Businesses may be required to perform data privacy and information security risk assessments before beginning processing activities. For example, both the CCPA and the EU’s General Data Protection Regulation (GDPR) require businesses to demonstrate that the processing results outweigh any associated information risk.

If third parties are involved in those activities, the company’s determinations on the necessity and proportionality of processing, risks versus benefits, and risk mitigation strategies will involve a third-party risk assessment.

Calibrating Potential Third-Party Privacy and Security Risks

Ensuring ongoing compliance with data privacy laws and regulations involves continuous calibration and monitoring. Per the CCPA, businesses hold the right to cease third-party processing services or stop and remediate them if they’re noncompliant. Remediation can involve:

• Implementing additional technical security controls
• Reconfigurations or customizations
• Additional contractual controls
• Adjusting to data privacy law updates like opt-outs for the CCPA as amended by CPRA

DataGrail’s Platform Is Essential to Your Holistic TPRM Strategy

When it comes to your organization’s TPRM strategy, both security and privacy are essential considerations when assessing business partnerships and data processing activities. There’s a plethora of cybersecurity tools that can help you with vendor risk management — like our partner, Drata’s solution — but shifting data privacy laws and regulations add new considerations that some solutions don’t account for or specialize in, but DataGrail does. 

Our platform’s Live Data Map ensures you know the location of all personal information collected from consumers, and our Risk Monitor helps you perform the privacy risk assessments that are increasingly crucial to TPRM strategies and processes.

Learn more about our data privacy platform and how it can help streamline your data privacy compliance and third-party risk management.