Third-Party Risk Management (TPRM): Effectively Managing Risks from Third Parties

Risks emanating from third parties, whether through cyberattacks, compliance violations or supply chain disruptions, not only jeopardize security, but also reputation, business processes and regulatory compliance. Today, a functioning TPRM is no longer a “nice to have”, but a strategic necessity.

Third-Party Risk Management (TPRM) is a systematic approach that companies use to identify, assess, and manage risks arising from collaboration with external partners, such as suppliers, service providers, or consultants. TPRM not only considers IT and data security risks, but also financial, regulatory, operational and ESG risks.

The importance of TPRM is increasing as many third parties have access to sensitive data or critical systems. With TPRM, risks can be identified at an early stage and targeted measures can be taken before damage occurs, making collaboration with third parties more secure and manageable.

An effective TPRM process is typically divided into the following phases:

1. Identification and classification: All third parties are recorded and categorized according to risk profiles, e.g. according to data access or strategic importance. This allows the highest-risk partners to be prioritized.
2. Risk assessment and due diligence: Risks such as data protection compliance, IT security, or financial stability are analyzed. Audits, questionnaires, or assessment reports help to identify the need for action.
3. Risk mitigation: Measures such as contractual requirements, security guidelines, or SLA controls proactively reduce identified risks.
4. Monitoring and controls: Third parties are continuously monitored to ensure that compliance and security requirements are met.
5. Termination and offboarding: At the end of the contract, data is securely returned or deleted, access is deactivated, and the entire process is documented in order to meet audit and compliance requirements.

Many companies still manage their third-party partners using Excel spreadsheets. At first glance, this seems simple and cost-effective, but in practice this method has significant disadvantages. Excel is prone to errors: typos, outdated information, or missing updates can lead to risks being overlooked.

Excel is also not scalable. With hundreds or thousands of partners, maintaining the spreadsheets quickly becomes confusing and time-consuming. The requirements for audits or regulatory compliance are usually not met either, as tracking, versioning, and documentation are missing.

Another disadvantage is that Excel does not enable continuous monitoring. Changes in the risk profile of a third-party provider, security incidents, or compliance violations are often only recognized after a delay. Excel can therefore at best serve as a simple overview, but is no substitute for professional third-party risk management that systematically identifies, evaluates, and monitors risks.

Today, companies not only face internal risks, but also threats from external partners. The terms Third-Party Risk Management (TPRM) and Governance, Risk & Compliance (GRC) are often used to specifically manage these different risks, but they have different focus areas and objectives.

Dimension	TPRM	GRC
Focus	Risks from external partners	Governance, risk, and compliance in the organization
Goal	Protection against risks from third parties	Holistic corporate risk management
Scope	Third-party data security, compliance, performance	All internal and external risks
Tools	TPRM software solutions	GRC platforms (often more diversified)

TPRM can be part of a GRC strategy, but is specifically geared towards external risks and supplier relationships.

Without systematic third-party risk management, companies can quickly be confronted with significant problems. Risks arise not only from technical vulnerabilities, but also from violations of regulations or standards by third-party providers.

Examples of such risks:

A systematic TPRM helps to identify these risks at an early stage, set priorities, and take targeted measures before damage occurs.

Sector-specific risks from third parties vary depending on the industry:

These examples show: Companies need to adapt their TPRM strategy to their specific industry.

Structured third-party risk management offers companies numerous advantages. It improves the transparency of risks and enables real-time monitoring of third parties. Preventive measures can reduce costs, while at the same time significantly shortening response times in the event of incidents. Other advantages include

With DiliTrust, third-party risk management is not only documented, but structured as an end-to-end process, automated and integrated into existing governance workflows, in particular through the interaction of CLM, document management, workflows, and reporting. The DiliTrust Suite offers a central platform for relevant data, documents, and approval processes along the third-party lifecycle. As a “single source of truth”, information on contracts, partners, terms, responsibilities, and compliance requirements is brought together in a traceable and auditable manner.

A central component is the AI-supported Risk Detector, which automatically analyses contracts, identifies risky or non-standard clauses, applies internal compliance rules, and highlights problematic passages. This makes risks visible as early as the contract or onboarding process, reduces manual errors, and saves time.

Core functions for TPRM use cases with DiliTrust include:

In this way, DiliTrust simplifies the operational management of third parties and at the same time creates the basis for preventive risk management, robust compliance evidence, and more effective monitoring throughout the entire third-party lifecycle.