Third-party risk management: Don’t get fired due to someone else’s failure

Third-party risk management (TPRM) has become a key concern for organizations. As organizations increasingly “outsource” many functions, tools, infrastructure, processes, and even staffing to external partners, the risks — to cybersecurity, compliance, reputation, finance, and operations — to your organization associated with these relationships have grown exponentially.

Third-party risk covers a broad spectrum: from situations where a vendor, supplier, or service provider is compromised, granting attackers unauthorized access to your organization’s sensitive data; to disruptions caused by the downtime of a third-party tool your operations depend on; to poor vendor upgrade policies that result in widespread outages across your systems (remember the 2024 CrowdStrike patch incident).

To illustrate this necessity for TPRM, IDC’s July 2025 SaaS Path report shows that about 20% of organizations experienced third-party data breaches in recent years with their SaaS providers. And those events can carry a huge financial impact. Delta Airlines, for instance, estimated the CrowdStrike outage cost it $500 million.

In this article, we’ll discuss the key elements of an effective TPRM program, emphasizing vendor risk categorization/due diligence, continuous monitoring, contract management, governance, technology integration, resilience, exit strategies, and implementation. (See also: 5 IT risks CIOs should be paranoid about.)

Comprehensive risk assessment

The foundation of an effective TPRM program is a comprehensive vendor risk assessment/doing your due diligence. This is not dissimilar from the more traditional business impact assessment used to design disaster recovery and business continuity plans.

For a successful TPRM program, organizations must maintain an up-to-date inventory of all third-party providers and services, categorizing vendors based on their access to sensitive systems and data, and their role in supporting the organization’s functional operations (i.e., if the vendor is offline, what impacts does that have on your services — internal or external?). This prioritization guides mitigation priorities, investments, with whom you choose to partner, and contractual requirements for vendors.

Risk identification should span multiple dimensions, including:

• Cybersecurity
• Operational, financial, and reputational impacts
• Legislative, statutory, and regulatory compliance
• ESG (environmental, social, and governance)
• Business continuity

Particularly, in regard to business continuity, you must evaluate the importance of each vendor’s systems to your organization’s ability to continue functioning. Vendors that provide mission-critical services or infrastructure — such as cloud hosting, payment processing, or supply chain management — should be prioritized for risk management efforts. For example, IDC research shows that disruptions in critical vendor systems can lead to significant operational downtime, costing organizations potentially millions in lost revenue and productivity. Are you prepared for this risk?

Standardized risk audit forms, such as the SIG (Standardized Information Gathering) Questionnaire and CAIQ (Consensus Assessments Initiative Questionnaire), can streamline the collection and validation of vendor information. These forms should also extend to fourth-party vendors (partners of your vendors), addressing indirect risks within the supply chain. By implementing these measures, organizations can ensure that their vendor selection process is both rigorous and comprehensive and that vendor risk profiles are understood; it can also rule out some vendors that don’t meet the risk profile acceptable to your company. (See also: How resilient CIOs future-proof to mitigate risks.)

Contract management

Effective contract management is essential for mitigating risks identified during the due diligence phase. Contracts should include specific terms to address cybersecurity requirements, data protection, audit rights, risk reporting, vendor business continuity promises, resiliency service-level agreements (SLAs), and liability clauses.

Additionally, organizations should align contract terms with relevant regulatory frameworks like GDPR and ISO 27001 to ensure compliance with global standards. By embedding risk mitigation clauses into contracts, organizations can establish clear expectations and safeguards for vendor relationships.

Ongoing monitoring and incident response

After vendors are onboarded, ongoing monitoring becomes critical to maintaining operational resilience. Organizations should track vendor performance, SLA adherence, cybersecurity incidents, and overall operational health. Automated workflows can help address anomalies and policy violations, ensuring that issues are resolved proactively.

Incident reporting is another key aspect of ongoing monitoring. Organizations must generate compliance reports and communicate potential risk impact analyses to stakeholders. These reports not only provide transparency but also facilitate informed decision-making during incidents. Continuous monitoring is equally vital, as it allows for real-time tracking of emerging threats and compliance gaps. IDC analysis shows that continuous monitoring reduces risk identification time by up to 50%, making it a valuable component of any TPRM strategy.

Governance and reporting

Governance and reporting are integral to the success of any TPRM program. A centralized risk repository enables cross-departmental collaboration and informed decision-making by consolidating risk data into a unified platform.

Investing in TPRM platforms enhances governance by automating assessments, monitoring, workflows, and reporting. TPRM tools provide organizations with the capabilities needed to manage risks effectively and align their processes with regulatory frameworks.

Technology integration

Technology plays a pivotal role in modern TPRM programs. Generating software bills of materials (SBOMs) allows organizations to identify vulnerabilities in third-party software components and ensure continuous updates. Also, when an organization hears of a vulnerability, with an SBOM it can easily assess whether it has that at-risk technology and what the potential impacts may be, which allows for improved triage of remediations.

Resilience

Resilience planning is essential for ensuring business continuity during disruptions. Organizations should develop failover mechanisms and alternative vendor options to mitigate the impact of vendor-related problems.

Exit strategies

Sometimes an organization wishes to change vendors; therefore, termination protocols and procedures need to be established as part of the contracting process to address the offboarding processes, including asset reclamation and data transfer. Many organizations, when deciding to end a vendor relationship, are often unpleasantly surprised to find themselves locked into an “open” vendor solution. 

Strategic implementation

Implementing a TPRM program requires a phased approach to ensure its success. Organizations should start with low-risk vendors or processes to develop the processes (i.e., build the muscle memory for more complex vendors) and then scale adoption strategically. Training and change management are equally important, as they educate stakeholders on TPRM processes and tools, ensuring consistent adoption across departments.

A variant on third-party risk management: Open source software

Open source software (OSS) is widely adopted by organizations due to its cost-effectiveness, scalability, and ability to accelerate development processes. However, its use introduces unique third-party risks that require careful management. IDC research highlights several key considerations and strategies for mitigating these risks:

• Security vulnerabilities: Open source projects vary in their ability to manage security risks. Some projects lack robust mechanisms to prevent, detect, and patch vulnerabilities, leaving organizations exposed to potential attacks.
• Malicious code injection: Threat actors may pose as legitimate contributors to inject malicious code into OSS repositories, compromising the software supply chain.
• Lack of governance: Open source projects often rely on volunteer contributors, leading to inconsistent security.

To manage these OSS third-party risks, the following steps are recommended:

• Validate sources: Vet OSS projects for security track records, community activity, and contributor reliability.
• Use SBOMs: Track OSS components and dependencies to identify vulnerabilities and ensure compliance.
• Continuous monitoring: Regularly reassess OSS security posture and monitor for vulnerability disclosures.
• Curated repositories: Maintain internal repositories to vet and certify OSS components before use.
• Commercial support: Leverage commercially supported OSS solutions for enhanced security and compliance.
• Community collaboration: Engage with OSS communities to support governance and security improvements.

Conclusion

A robust TPRM program framework is essential for mitigating risks, ensuring compliance, and maintaining operational resilience with critical vendors. It addresses suppliers, software (commercial and open source), MSPs, contingent staffing organizations, and more. By leveraging advanced technologies, standardized processes, and strategic governance, organizations can transform third-party risk management into a competitive advantage. This framework not only protects against vulnerabilities but also positions organizations to thrive in an increasingly interconnected, chaotic, and complex business environment.

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International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the technology markets. IDC is a wholly owned subsidiary of International Data Group (IDG Inc.), the world’s leading tech media, data, and marketing services company. Recently voted Analyst Firm of the Year for the third consecutive time, IDC’s Technology Leader Solutions provide you with expert guidance backed by our industry-leading research and advisory services, robust leadership and development programs, and best-in-class benchmarking and sourcing intelligence data from the industry’s most experienced advisors. Contact us today to learn more.

Daniel Saroff is group vice president of consulting and research at IDC, where he is a senior practitioner in the end-user consulting practice. This practice provides support to boards, business leaders, and technology executives in their efforts to architect, benchmark, and optimize their organization’s information technology. IDC’s end-user consulting practice utilizes IDC’s extensive international IT data library, robust research base, and tailored consulting solutions to deliver unique business value through IT acceleration, performance management, cost optimization, and contextualized benchmarking capabilities.