--- title: What Is Third-Party Risk Management (TPRM)? A Comprehensive Guide --- # What Is Third-Party Risk Management (TPRM)? A Comprehensive Guide Last Reviewed: March 6, 2026 9 min read [No comments](https://www.selecthub.com/risk-management/tprm/#respond) [ ![Shauvik Roy](https://www.selecthub.com/wp-content/uploads/2021/09/Shauvik-Headshot-96x96.jpg) ](https://www.selecthub.com/author/shauvik-roy/) [Written by Shauvik Roy](https://www.selecthub.com/author/shauvik-roy/) Technical Content Writer [ ![Pooja Verma](https://secure.gravatar.com/avatar/4f22202f68158fa4b012b18a196e08ea151f6f9427b194cce3330634ff0dd1b2?s=96&d=mm&r=g) ](https://www.selecthub.com/author/pooja-verma/) [Edited by Pooja Verma](https://www.selecthub.com/author/pooja-verma/) Content Editor Table of Contents * [What Is Third-party Risk Management?](#What%5FIs%5FThird-party%5FRisk%5FManagement "What Is Third-party Risk Management?") * [Importance](#Importance "Importance") * [Process](#Process "Process") * [Identification](#Identification "Identification") * [Initial Evaluation](#Initial%5FEvaluation "Initial Evaluation") * [Assessment](#Assessment "Assessment") * [Mitigation](#Mitigation "Mitigation") * [Reporting](#Reporting "Reporting") * [Contracting](#Contracting "Contracting") * [Monitoring](#Monitoring "Monitoring") * [Offboarding](#Offboarding "Offboarding") * [Primary Benefits](#Primary%5FBenefits "Primary Benefits") * [Streamline Vendor Onboarding Procedures](#Streamline%5FVendor%5FOnboarding%5FProcedures "Streamline Vendor Onboarding Procedures") * [Improve Third-party Risk Visibility](#Improve%5FThird-party%5FRisk%5FVisibility "Improve Third-party Risk Visibility") * [Spend Resources Intelligently](#Spend%5FResources%5FIntelligently "Spend Resources Intelligently") * [Minimize Lapses, Errors and Omissions](#Minimize%5FLapses%5FErrors%5Fand%5FOmissions "Minimize Lapses, Errors and Omissions") * [Strengthen Customer Relations](#Strengthen%5FCustomer%5FRelations "Strengthen Customer Relations") * [Best Practices](#Best%5FPractices "Best Practices") * [Know Your Third Parties Intimately](#Know%5FYour%5FThird%5FParties%5FIntimately "Know Your Third Parties Intimately") * [Document and Record Information Whenever Possible](#Document%5Fand%5FRecord%5FInformation%5FWhenever%5FPossible "Document and Record Information Whenever Possible") * [Prioritize Automation](#Prioritize%5FAutomation "Prioritize Automation") * [Next Steps](#Next%5FSteps "Next Steps") In the current business environment, it’s impossible to maintain competitive integrity without creating and maintaining third-party relationships. The nature and scope of these relationships can vary depending on the industry and practice area. However, one unifying factor across all industries is outsourcing particular services and tasks to simplify business operations. [Compare Top Risk Management Software Leaders](https://pmo.selecthub.com/request-custom-scorecard/?category=Risk%20Management%20Software) ![Third-party Risk Management]() While it’s a double-edged sword, allowing a third party to access your company’s confidential information and data without proper safeguards can result in dire consequences. Most companies use [risk management software](https://www.selecthub.com/risk-management-software/) to protect against adverse risk incidents, but you can’t always keep an eye on vendors. Third-party risk management (TPRM) promises a more direct approach to managing risks from third-party relationships. ## What Is Third-party Risk Management? Third-party risk management is a comprehensive [risk management](https://www.selecthub.com/risk-management/risk-management/) program that specializes in identifying, assessing and mitigating critical risks arising from relationships with third-party vendors, suppliers, partners, service providers and contractors. It offers a set of practices to increase the visibility of third-party risk; these include performing due diligence on current and new vendors via standardized questionnaires and forms, creating a risk register for recorded risks and implementing risk prioritization. Risk can come in many shapes and sizes, and appropriate risk readiness can be the difference between a minor inconvenience and a major disruption. With risks growing more complex every day, the third-party risk management market is also growing at a rapid pace. A report by MarketsandMarkets anticipates the [third-party risk management market](https://www.futuremarketinsights.com/reports/third-party-risk-management-market) size to grow to $ 19.7 billion by 2032. A robust third-party risk management framework can help you develop and implement controls in collaboration with your partners, paving the way for a holistic and proactive approach. Having contingency plans and risk controls in place can give your risk management team enough time to react to multidimensional risk events such as supply chain disruptions, political instability, cyber attacks and labor issues. [Compare Top Risk Management Software Leaders](https://pmo.selecthub.com/request-custom-scorecard/?category=Risk%20Management%20Software) ## Importance There are an estimated [20,406 third-party logistics](https://www.ibisworld.com/industry-statistics/number-of-businesses/third-party-logistics-united-states/) ([3PL](https://www.selecthub.com/warehouse-management/3pl/)) businesses in the U.S., recording an increase of 2.1% from 2021\. It’s safe to say that third-party relationships are here to stay. So the only way forward is to sufficiently equip your organization and its employees with the means to combat associated risks effectively. Third parties play a significant role in optimizing business operations and streamlining consumer interaction with your services. The overall verdict on [outsourcing](https://www.investopedia.com/terms/o/outsourcing.asp) is that it’s largely beneficial for organizations irrespective of size, scope or industry. However, each third-party vendor or contractor can act as a point of vulnerability, compromising your cybersecurity and information security infrastructure. While it may not always be possible for a standard enterprise risk management (ERM) software or [governance, risk and compliance](https://www.selecthub.com/grc-software-tools/) (GRC) software to monitor your third-party relationships in real time, a third-party risk management framework can help you get maximum value while minimizing associated risks. According to a report, [third-party relationships are responsible](https://get.cybergrx.com/ponemon-report/) for 53% of organizations in the U.S. experiencing one or more [data breaches](https://www.trendmicro.com/vinfo/us/security/definition/data-breach) in the last two years, costing an average of $7.5 million to remedy. Apart from data breaches, third-party contacts can expose you to operational, regulatory, reputational, legal and financial risks. Third-party risk management can reduce your organization’s risk exposure and minimize internal lapses. [Get our Requirements Template for Risk Management Software](https://pmo.selecthub.com/rms-requirements-onsite/) ## Process The third-party risk management process consists of several interconnected steps to cover the entire TPRM lifecycle. ![Third-party Risk Management Process]() ### Identification The first step of any third-party risk management program is to identify potential third-party vendors suitable for your organization. If you want, you can create a vendor directory to keep track of all possible candidates. Reach out to cybersecurity sources and identify trustworthy vendors based on existing information. Another viable option is to contact your peers in the industry and conduct assessments or surveys to identify potential vendors or service providers that can be a good fit. ### Initial Evaluation Once you have the shortlist of potential vendors ready, perform an initial evaluation based on cybersecurity ratings, vendor information, certifications and the scope of engagement. Based on the results, inform selected vendors of your decision and start evaluating their [requests for proposal](https://www.investopedia.com/terms/r/request-for-proposal.asp) (RFP) to shortlist final candidates. ### Assessment Subject potential vendors to a series of standardized tests and questionnaires according to their area of expertise and exposure to confidential information. Not all vendors will have the same clearance and consequently don’t deserve the same level of oversight. Depending on the access tier, you can use several industry-specific standards to assess third-party risk, including SIG Lite, SIG Core, HITRUST and ISO 27001\. Assign risk scores based on criticality and impact probability of individual threats. ### Mitigation Develop and implement risk controls in collaboration with third-party vendors. You can define and document risk definitions, controls and roles to avoid lapses during crucial moments. Implement workflows to administer risk controls and notify relevant parties. The risk score will determine what level of attention and resources a particular risk merits. ### Reporting Run reports on your third-party risk management measures to compare their performance against your competitors. Frequent reporting can help you identify failing controls, inefficiencies and compliance failures ahead of time. While manual reporting can be a pain and prone to errors and omissions, you can implement third-party risk management software or third-party [vendor risk management software](https://www.selecthub.com/vendor-risk-management-software/) to reduce the required time and effort significantly. ### Contracting If you have settled on a final list of vendors, it’s time to seal the deal. Prepare a contract acceptable to both parties, run it through appropriate channels and get it signed. Some key provisions and clauses you need to lock down include [service level agreements](https://www.servicenow.com/products/itsm/what-is-sla.html) (SLAs), insurance, limitation of liability, confidentiality clause, price and payment terms, compliance clause, and data protection agreement. Run it by your legal team if necessary; any mistakes here can have significant consequences down the road in terms of profitability and efficiency. ### Monitoring Risk management is continuous; implementing controls and running reports are not enough. Continuously monitor your third-party risk management framework, run frequent assessments and keep an eye on any changes. Run several “what if” scenarios to see how your risk management plan is holding up. Keep an eye out for natural disasters, regulatory changes, product changes and mergers, and monitor your third-party risk management plan to see if it needs any changes or not. ### Offboarding Create, review and document a comprehensive offboarding checklist for your existing vendors. You can run internal audits of the offboarding process to maintain an auditable record at all times. Make sure the offboarding procedure complies with industry regulations and syncs with your organization’s best interests. It’s critical that third-party vendors and suppliers, once offboarded, can no longer access your company’s infrastructure or compromise your operations in any way. [Get our Requirements Template for Risk Management Software](https://pmo.selecthub.com/rms-requirements-onsite/) ## Primary Benefits Third-party risk management is the key to unlocking the maximum potential of your external vendors, suppliers and contractors. Some of its benefits include: ![Third-party Risk Management Benefits]() ### Streamline Vendor Onboarding Procedures You can use standardized questionnaires and vendor self-service portals to simplify a large part of the vendor onboarding process. Gather all relevant data and use it to auto-populate fields for a superior application process. Ensure you have all the essential information before beginning the initial evaluation process for a faster and smoother experience. ### Improve Third-party Risk Visibility Access round-the-clock assessment, reporting and recording processes to track potential issues in real time. If you are using risk management or TPRM software, you can use the dashboard to get a 360-degree view of risks, receive status reports and track issues till mitigation. A fully fleshed third-party risk management program can help you drill deeper into any risk and use the insights to bolster your risk management program further. ### Spend Resources Intelligently Not all vendors merit the same level of scrutiny because they have access to confidential or personally identifiable information. You can identify and categorize vendors and allocate resources and tasks accordingly. It’ll save time and money and insulate your risk management team against burnout. ### Minimize Lapses, Errors and Omissions Built-in workflows and scripts automate a large part of the risk management process. A standardized procedure prevents arbitrary assessments and eliminates any omissions because of human error. Automate all the legwork and leave the decision-making to your team. If any mistake goes through, frequent assessments and audits will detect them before they cause any lasting damage to your organization. ### Strengthen Customer Relations A high-performing third-party risk management program means fewer interruptions, faster production and speedy resolution of vendor issues. Taken together, all these advantages mean your customer receives superior service with shorter waiting times. A consistent and reliable customer experience leads the way for improved retention, engagement and loyalty. A happy third-party network is the fastest way to a satisfied customer base. [Compare Top Risk Management Software Leaders](https://pmo.selecthub.com/request-custom-scorecard/?category=Risk%20Management%20Software) ## Best Practices ### Know Your Third Parties Intimately Don’t cut corners or rush through the due diligence process. Prepare a third-party inventory and categorize your relationships in different tiers based on criticality, inherent risk and impact probability. Carefully screen vendor information against cybersecurity, media, law enforcement and global regulatory bodies. Task your risk management team to continuously monitor third-party operations for any signs of issues or non-compliance. Another thing to remember is that third parties might outsource specific tasks and services to [fourth-party](https://www.selecthub.com/warehouse-management/4pl/) (4PL) providers. Request all relevant fourth-party information beforehand so you can incorporate that data into your third-party risk management workflows. If a fourth-party malfunction can critically compromise your vendor, you need to be aware of that possibility in advance. ### Document and Record Information Whenever Possible Always make a habit of defining, documenting and recording workflows and responsibilities. During times of crisis, this documentation will serve as the singular source of truth for everyone involved. Documentation and recorded data are also valuable as evidence for any internal and external audits. In case of employee turnover, these records act as a point of reference and make sure the TPRM program can continue functioning according to standards without disruption. ### Prioritize Automation For third-party risk management processes, automation is your best friend. Leverage a third-party risk management framework or software you’re familiar with to introduce automation wherever possible. It significantly speeds up and simplifies risk assessment, mitigation, due diligence and onboarding tasks. Additionally, you can trigger notifications, escalation pathways, reporting and vendor performance assessments. Automated workflows are easier to maintain, review and update. It ensures your business can scale and compete with the best in the industry while simultaneously saving hundreds of hours in the process. [Compare Top Risk Management Software Leaders](https://pmo.selecthub.com/request-custom-scorecard/?category=Risk%20Management%20Software) ## Next Steps Third-party risk management is the key to insulating your organization and its stakeholders from associated risks. It covers all your bases and protects the company from operational, financial or reputational damage. While you can’t control or dictate what your third parties do, with enough visibility, you can be aware of what’s happening behind the scenes and protect the company’s interests accordingly. The TPRM program develops a culture of risk readiness, transparency and accountability for your entire supply chain. 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Emerging technologies,… ](https://www.selecthub.com/risk-management/integrated-risk-management/) [ ![Nidhi Choraria](https://www.selecthub.com/wp-content/uploads/2023/04/Nidhi-Choraria-Headshot-96x96.jpg) Nidhi Choraria ](https://www.selecthub.com/author/nidhi-choraria/) Mar 06, 2026 Originally published in May 2024 and last updated in March 2026\. Contributions from Shauvik Roy, and Pooja Verma. ## About the Contributors The following team members helped research, create, and review this content. [ ](https://www.selecthub.com/author/shauvik-roy/) Written by [Shauvik Roy](https://www.selecthub.com/author/shauvik-roy/) Technical Content Writer Shauvik Roy is a Market Analyst at Selecthub. He writes content for the insurance, risk management and legal domains. Hailing from the city of Kolkata, he has a Master's Degree in English from the University of Hyderabad. When he's not busy pitting one software against another, you will find him playing video games, reading sci-fi books or tinkering with his PC. [See Full Bio](https://www.selecthub.com/author/shauvik-roy/) [ ](https://www.selecthub.com/author/pooja-verma/) Edited by [Pooja Verma](https://www.selecthub.com/author/pooja-verma/) Content Editor Pooja Verma is a Content Editor and Technical Content Writer at SelectHub. She has over 5 years of experience covering software categories like CRM, marketing automation, supply chain management and endpoint security. Pooja earned a literature degree from Miranda House, DU and also holds a Master’s in Journalism from Symbiosis Institute of Media and Communication in India. [See Full Bio](https://www.selecthub.com/author/pooja-verma/) Nidhi ChorariaIntegrated Risk Management: A Comprehensive Guide * ‹ * › ### Conversation ![Avatar](https://secure.gravatar.com/avatar/281d3616cf761f3582c0d76c23517846?s=32&d=mm&r=g) Write a response [Cancel reply](https://www.selecthub.com/risk-management/tprm/#respond) Your message Your name \* Your email \* Website Save my name, email, and website in this browser for the next time I comment. Δ **Tier 1:** Fully/moderately supported out-of-the-box allowing for quick and easy deployment. Fully or moderately supported out-of-the-box with industry-leading capabilities and is immediately available after installation without needing any add-ons, integrations, or custom development. **Tier 2:** Supported with workarounds or add-ons that may require additional costs. 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