Third-party risk management

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What is third-party risk management?

Third-party risk management (TPRM), often referred to as vendor risk management, is a structured approach organizations use to identify, assess, manage and monitor the risks created by vendors, suppliers, service providers and other external partners. An effective TPRM program helps organizations protect sensitive data, meet regulatory and contractual obligations, and reduce operational, compliance, financial and reputational risk across the third-party lifecycle.

TPRM framework and best practices

An effective TPRM program combines structured governance with practical execution to manage risk across the full vendor lifecycle. Key elements include:

1. Governance and ownership

Define clear ownership across business, risk and procurement teams, detailing accountable stakeholders for active management of third-party risks. Maintain a centralized inventory of vendors and establish consistent processes for identifying and categorizing risk based on data sensitivity, system access, artificial intelligence usage and regulatory impact.

2. Risk-based due diligence and assessment

Conduct risk-based due diligence prior to onboarding, evaluating cybersecurity, AI, compliance, and financial and operational controls. Tailor the depth of assessments based on inherent and residual risk to prioritize high-impact relationships.

3. Contractual controls and accountability

Establish contracts that define security requirements, audit rights, service-level agreements and incident notification obligations to formalize expectations and reduce exposure.

4. Technology-enabled scalability

Leverage technology to automate vendor inventories, assessments, workflows and reporting. This improves efficiency and allows programs to scale as vendor ecosystems grow.

5. Continuous monitoring and risk response

Continuously monitor third-party risk posture to identify emerging threats such as cyber incidents, control failures or financial instability, enabling proactive response and mitigation.

6. Offboarding and lifecycle closure

Implement formal offboarding processes to revoke system access, recover or destroy data, and fulfill all contractual obligations at the end of vendor relationships.

Common third-party risks

Organizations face many forms of third-party risk—and while not every risk applies to every vendor relationship, exposure increases as third parties support more critical processes, systems and data. Common categories of third-party risk include:

Compliance and legal risk

Compliance and legal risk arises when third parties fail to comply with laws, regulations, contractual requirements or internal policies, resulting in regulatory scrutiny, penalties or legal action.

Cybersecurity and information security risk

Cybersecurity and information security risk occurs when third parties lack adequate controls to protect sensitive data, systems or networks, increasing the likelihood of data breaches, ransomware incidents or unauthorized access.

Financial risk

Financial risk reflects the potential impact of a third party’s financial instability, cash flow challenges or internal control weaknesses, which may disrupt services or create unexpected financial loss.

Operational risk

Operational risk results from third party failures in processes, people or technology that can interrupt business operations, increase complexity or reduce service quality.

Reputational risk

Reputational risk emerges when-third party incidents, misconduct or non-compliance negatively affect customer trust, stakeholder confidence or brand perception.

Strategic risk

Strategic risk arises when third party relationships or outsourcing decisions do not align with business objectives, growth plans or risk tolerance, limiting the organization’s ability to execute its strategy.

Transactional risk

Transactional risk relates to errors, fraud or control breakdowns within third party transactions—such as payments, data transfers or system integrations—that threaten data integrity or result in unauthorized activity.

What does a TPRM program look like?

RSM’s TPRM approach focuses on the core components organizations need to design, operate and mature an efficient, scalable and defensible program across the third‑party lifecycle:

Oversight to define ownership, roles and accountability in alignment with your risk appetite
Risk assessment methodologies aligned to leading frameworks such as NIST (CSF 2.0, SP 800-53 Rev. 5, SP 800-161 Rev. 1) and ISO/IEC 27001:2022; and industry-specific regulatory requirements such as OCC guidance, OSFI Guideline B-10 and HIPAA Security and Privacy rules
Technology and tools to automate workflows and improve efficiency and visibility
Policies and procedures that govern risk management across the third-party lifecycle, from planning and due diligence through contracting, monitoring and termination

RSM takes a holistic, risk‑based approach to TPRM, tailoring the program to your organization’s strategy, risk appetite and business objectives while addressing key risk categories such as compliance and legal; cybersecurity and information security; and financial, operational, reputational, strategic and transactional.

TPRM services and solutions

Assess and mature your TPRM program	Design and build a defensible TPRM program	Strengthen risk assessments and controls	Enable technology and data-driven oversight	Operate and scale TPRM with confidence	Outsource or augment TPRM operations
TPRM maturity assessments and program health reviews Third-party risk internal audit co-sourcing support Gap analysis aligned to regulatory guidance and leading frameworks	Governance, ownership and operating model design TPRM policy, procedure and lifecycle documentation Vendor risk tiering and classification methodologies	Third-party risk assessments (on-site and remote) Vendor audits, due diligence and control testing Contract risk reviews and control alignment	Vendor inventory validation and rationalization TPRM technology selection and development of requests for proposal Business intelligence reporting and C-suite risk metrics	Continuous vendor and fourth-party monitoring Issue remediation, escalation and risk tracking Program training, rollout and change management	End-to-end TPRM as a service Ongoing program management and managed services Flexible support models aligned to business needs

Frequently asked questions

: Vendors often have access to critical systems, sensitive data and core business processes, extending risk beyond an organization’s direct control. A structured TPRM program helps reduce cybersecurity, compliance, operational, financial and reputational risks while supporting regulatory expectations and business continuity.

: Key elements include governance and ownership, risk-based due diligence and assessments, vendor risk categorization, contractual controls, ongoing monitoring, and defined offboarding processes across the third-party lifecycle.

: Organizations build a program by defining risk appetite; categorizing third parties based on inherent risk, applying due diligence and controls proportionate to risk level; and continuously monitoring higher-risk vendors to focus resources where they will have the greatest impact.

: An assessment evaluates the inherent risk of a vendor relationship, determines the effectiveness of the vendor’s controls through questionnaires or reviews, identifies residual risk, and documents remediation actions or ongoing monitoring requirements.

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RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

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