Key Takeaways:
- Third-Party Risk Management (TPRM) is a comprehensive strategy that identifies and mitigates security, compliance, and operational risks across all external vendors rather than just the supply chain.
- TPRM protects your organization from costly supply chain attacks where cybercriminals target smaller, less secure vendors to act as “Trojan horses” for breaching your internal defenses.
- Regulatory frameworks like HIPAA, GDPR, and PCI DSS hold your organization directly liable for the security failures and data breaches of your third-party providers.
- Modern risk management requires shifting from manual annual reviews to automated, continuous monitoring platforms that can detect emerging vendor threats in real time.
Did you know that most Americans spend almost 15 hours researching vehicles before buying a new car? Even more time and effort go into new home purchases, with consumers looking at eight different properties and spending 10 weeks or more.
Your business likely takes risk management equally seriously. But do you have all your bases covered? A surprising number of organizations unknowingly overlook third-party risks and experience major problems as a result. Why is third-party risk management so important?
What Third-Party Risk Management Means
The risk management lifecycle involves identifying risks, anticipating dangers, selecting effective actions to minimize or avoid problems, and then following through. Third-party risk management applies this process to the vendors and service providers you do business with.
To successfully manage third-party risks, you have to understand how and where the companies impact your business. That way, you can avoid high-risk vendors, apply controls to mitigate potential harms, and set appropriate standards for outside partners.
It’s not until making a list of suppliers that many enterprises realize how many outsourced products and services they really use:
- Software suppliers: Bespoke enterprise software and popular apps, such as Microsoft 365, Google Meet, etc.
- IT service providers: IT maintenance technicians, ISPs, and network security companies
- Other service providers: Third-party maintenance companies, staffing agencies, and customer service providers
- Specialists: Auditors, legal firms, financial advisors, and consultants
- Cybersecurity tools: Antivirus software, firewalls, and access control tools
- System infrastructure: Payment processors, cloud computing platforms, and data centers
Is TPRM the same as vendor risk management or supply-chain risk management? Not quite.
VRM focuses on provider-related aspects of third-party risk, such as the company’s cybersecurity and compliance practices. SCRM looks at disruption risks, like geopolitical obstacles or natural disasters. TPRM covers everything.
Why Third-Party Risk Management Is More Important Than Ever
Enterprises can’t afford to take vendor promises at face value. It’s vital to identify third-party risks and protect your organization from harm.
1. Software Supply Chain Attacks Are Increasing
Cybercriminals have figured out that it’s easier to breach large organizations by targeting smaller vendors. One in six data breaches involves a supply-chain attack.
In 2023, this type of vendor-related cyberattack cost global companies $46 billion. In 2025, the number jumped to $60 billion. Following that trend, by 2031, the financial impact of third-party data breaches will surpass $135 billion, more than double.
2. Third-Party Products Can Introduce Dangerous Vulnerabilities
Even companies with otherwise strong cybersecurity can suffer devastating losses from software supply chain attacks. If you’re not careful, vendors with poor security practices can be a Trojan horse, weakening your defenses from within.
Common third-party vulnerabilities include:
- Ransomware attacks
- Insider threats, including theft
- Accidental errors that trigger shutdowns
- Unplanned downtime
Some risks come from code vulnerabilities in software. Other times, cybercriminals use stolen vendor credentials to send phishing emails that are difficult for your employees to detect.
In all of these cases, the best offense is a good defense. With third-party risk management, you can design controls that mitigate the dangers, such as limiting software access permissions to the bare minimum.
3. Vendors Have Access to Sensitive Data and Systems
Banks go to exceptional lengths to keep unauthorized personnel away from sensitive areas and systems. Is your organization equally careful with your most important data and assets?
Vendor risk assessments help you accurately anticipate risks to proprietary data, customer records, bank accounts, employee lists, contracts, and other information that you need to run your business. Due diligence reduces the risk of improper records access, accidental file deletion, deliberate lockouts, and IP theft.
Without TPRM, fourth-party risk can fly under the radar. Companies that look secure on the surface can hide larger issues.
In 2025, cybercriminals stole sensitive customer data from Coinbase in a high-profile breach expected to cost the company $400 million or more. Instead of hacking directly into Coinbase’s systems, the criminals simply paid overseas third-party contractors for login credentials. This type of “malicious insider” recruitment strategy is growing.
4. Careless Vendor Selection Can Hurt Your Customers
From network service providers and cybersecurity software to transportation companies and payment processors, nearly all vendors impact your customers in one way or another. It takes many years to build trust, but a single data breach can destroy it. To maintain a good relationship with clients, you need to choose reliable vendors.
5. Regulatory Agencies Hold You Accountable for Supplier Vulnerabilities
In many industries, third-party risk management is also important because industry standards require it. For example, PCI DSS requires detailed risk assessments, which include vendor risk management programs.
Both HIPAA and GDPR hold organizations responsible for the security and privacy failures of third-party providers. In other words, TPRM is a critical part of regulatory compliance.
6. Consumers Care About the Vendors You Choose
Brands can suffer reputational harm because of the words or actions of vendors. If your company markets to consumers, third-party risk assessments should include environmental, social, governance, and reputational risks. Make sure the companies you partner with share your values and reflect well on your brand.
7. Global Instability Can Cause Unexpected Problems
Even though TPRM is often associated with cybersecurity, vendor-related risks are connected with many other aspects of your GRC strategy:
- Bankruptcy and financial problems
- Operational disruptions
- Natural disasters and related impacts (e.g., data losses)
- Geopolitical tensions
- Labor issues
- Regulatory changes
Proof that supply chain risks are impacting American enterprises is the increase in nearshoring instead of offshoring in recent years.
How To Manage Third-Party Risk More Efficiently and Effectively
How can your organization adapt to such a rapidly changing environment without losing the advantages of third-party services? The key is to improve TPRM, shifting from manual processes to technology-enhanced risk management.
Annual vendor reviews are no longer sufficient. Too much can change in days or weeks.
With a risk-management platform like Compyl, your team can maintain a centralized vendor database with up-to-date scanning results, real-time reporting, and compliance monitoring. Every department can make data-driven decisions backed by accurate assessments.
Third-party risk management is vitally important, but it doesn’t have to be complicated. Streamline vendor risk management, compliance, and cybersecurity with the right data at your fingertips. Request a demo today.
