What Is Third-Party Risk Management? A Complete Guide

Organizations today rarely operate in isolation. From cloud providers and SaaS platforms to contractors and supply chain vendors, businesses depend on third parties for efficiency. 

While this ecosystem drives innovation and lowers costs, it also expands attack surfaces, complicates compliance, and creates dependencies.

This is where third-party risk management (TPRM) comes in, helping organizations identify, assess, and control vendor risks so a partner’s problem doesn’t become your problem.

In this guide, you’ll learn what TPRM is, why it matters, its lifecycle, common risks, and best practices. We’ll also cover how Spin.ai can help you get started with third-party risk management.

What Is Third-Party Risk Management (TPRM)?

Third-party risk management (TPRM) is the process of identifying, assessing, monitoring, and mitigating risks from vendors, suppliers, contractors, and partners.

Because these third parties often access sensitive systems and data, their weaknesses can become your vulnerabilities. A mature program reduces exposure while ensuring partnerships stay enablers — not liabilities.

Why Is Third-Party Risk Management Important?

Third-party risk management is important because businesses increasingly rely on third-party tools and therefore cannot isolate risk to internal systems alone.

Here are some of the key reasons why TPRM is important:

1. Strengthens cybersecurity: Vendors are prime attack vectors and breaches often cascade to customers.
2. Demonstrates regulatory compliance: Frameworks such as GDPR, HIPAA, PCI DSS, and SOC 2 require demonstrable vendor due diligence.
3. Protects business continuity: Critical vendor failures, downtime, or financial instability can halt operations. TPRM enforces redundancy, recovery plans, and contractual safeguards.
4. Preserves reputation and trust: Customers expect protection no matter where data resides.
5. Controls costs: Proactive risk management is cheaper than breach remediation or fines.

Common Types of Third-Party Risks

Third-party risks are multidimensional and can affect your organization in various ways. Common categories include:

1. Cybersecurity risk: Breaches, ransomware, insecure APIs, and compromised credentials.
2. Privacy risk: Mishandled personal data, weak consent practices, and data residency gaps.
3. Operational risk: Downtime, missed SLAs, poor performance, and supply chain issues.
4. Compliance and legal risk: Regulatory violations, contractual breaches, and non-adherence to standards.
5. Financial risk: Insolvency or weak financial controls affecting commitments.
6. Reputational risk: Negative publicity or vendor misconduct impacting brand trust.
7. Strategic risk: Vendor lock-in, overreliance, and misaligned goals.
8. Geopolitical risk: Sanctions, export controls, and instability in vendor regions.

The Third-Party Risk Management Lifecycle (5 Phases)

The third-party risk management lifecycle provides a repeatable framework for governing vendor relationships from start to finish. Most programs structure the lifecycle into five core phases.

Phase 1: Planning & Inventory

Define risk appetite, roles, and governance. Build a centralized vendor inventory mapped by data access and criticality.

Phase 2: Due Diligence & Assessment

Classify vendors by risk tier. Collect evidence (e.g., via questionnaires, SOC/ISO reports, and pen tests) and identify gaps before onboarding.

Phase 3: Onboarding & Contracting

Embed security and compliance clauses in contracts, set service-level agreements (SLAs) and key performance indicators (KPIs), and require remediation before go-live.

Phase 4: Monitoring & Performance Management

Continuously monitor vendor security posture, reassess as needed, and track performance with scorecards.

Phase 5: Termination & Offboarding

Revoke access, ensure secure data return/destruction, update the inventory, and document lessons learned.

Examples of Third-Party Security Risks

Let’s examine some real-world cases that highlight the dangers of unmanaged third-party risks.

Scenario 1 : Extension code compromise (Cyberhaven, 2025)

In January of 2025, it was revealed that an extension developer for cybersecurity company Cyberhaven was successfully phished, giving attackers access to inject malicious code into the platform’s Chrome extensions. The attack ultimately impacted 3.7 million users and was part of a campaign targeting numerous Chrome Extension developers.

Scenario 2: Retail third-party provider breach (Harrods, 2025)

Harrods revealed that a third-party service provider’s system was breached, exposing personal details (names, emails, phone numbers, postal addresses) of up to ~500,000 customers. Internal systems were not impacted.

Scenario 3: Widespread Supply Chain Attack (Tenable, 2025)

Cybersecurity firm Tenable has confirmed it was a victim of a major supply chain attack that compromised customer data. The breach originated from a third-party vendor, Salesloft Drift, and has impacted more than 700 organizations.

Scenario 4: Vendor CRM breach (Allianz Life, 2025)

Hackers exploited a third-party, cloud-based CRM system used by Allianz Life via a social engineering attack and accessed personally identifiable data for the majority of its ~1.4 million U.S. customers, financial professionals, and some employees.

Scenario 5: Breach-settlement (AT&T / Snowflake, 2025)

AT&T agreed to a $177 million settlement over several data breaches, including one involving the Snowflake cloud platform. The breach revealed that call and text logs from nearly all AT&T customers (stored in Snowflake) were improperly accessed.

Scenario 6: Third-party cloud service breach (Snowflake, 2024)

In mid-2024, at least 160 organizations were reportedly targeted through vulnerabilities in how their Snowflake environments were configured and accessed. Affected companies included AT&T, Ticketmaster/Live Nation, Santander Bank, LendingTree, Advance Auto Parts, Neiman Marcus, and Bausch Health.

Scenario 7: Vendor platform breach (Okta, 2023)

A third-party support provider was compromised, exposing sensitive customer data and disrupting identity services.

How to Evaluate Third-Party Risk

Evaluating vendors requires structured due diligence. A practical approach combines a checklist of must-haves with awareness of common red flags:

Evaluation Checklist

1. Certifications & audits: Does the vendor maintain SOC 2 Type II, ISO 27001, PCI, HIPAA, or other relevant certifications? Ask for recent audit reports as evidence.
2. Data flow & residency: What data will the vendor access, where will it be stored, and which jurisdictions’ laws apply?
3. Access model: Are accounts role-based, protected by MFA/SSO, and monitored for privileged activity?
4. Subprocessor transparency: Who are their subprocessors and how are they vetted and disclosed?
5. Technical hygiene: Do they have a patching cadence, encryption in transit and at rest, and vulnerability management processes?
6. Incident readiness: Do they have a documented incident response plan and explicit notification SLA (24–72 hours is common)?
7. Business continuity & DR: Are there tested recovery plans, recovery time objective (RTO) or recovery point objective (RPO) targets, and validated backups?

Red Flags

If you encounter any of these red flags, you’re best off looking for another vendor:

1. Refusal to provide audit evidence, pen test reports, or certification details.
2. Opaque subcontracting or undisclosed subprocessors.
3. Weak encryption practices, missing key management, or a lack of audit logs.
4. No incident notification SLA or refusal to commit to timelines.
5. Overly restrictive contracts that cap liability or deny audit rights.

If red flags persist, negotiate remediation steps (e.g., conditional access, stronger SLAs, and additional controls) or consider alternate providers.

Third-Party Risk Management Best Practices

To maximize the effectiveness of third-party risk management, organizations should adopt these best practices.

1. Prioritize Your Vendor Inventory

Keep a centralized inventory with vendor access levels, services, and risk ratings. Focus on those handling sensitive data or critical systems first.

2. Leverage Automation Wherever Possible

Replace manual spreadsheets with tools for vendor discovery, monitoring, and evidence collection. Automation reduces errors and speeds up assessments.

3. Think Beyond Cybersecurity Risks

Evaluate financial health, legal risk, supply-chain dependencies, and reputation. Not just technical controls.

4. Make TPRM Cross-Functional

Engage procurement, legal, compliance, IT, and finance. Business units should own relationships, while security should provide governance.

5. Establish Strong Governance and Accountability

Set clear ownership, KPIs, and accountability. Assign vendor owners and train staff to spot risks.

6. Integrate with Incident Response

Include vendors in response plans with SLA clauses and tabletop exercises to validate processes.

7. Plan and Test Exit Strategies

Define offboarding procedures: secure data return, access revocation, and encryption key removal.

8. Standardize and Streamline Processes

Apply consistent controls like MFA, encryption, least privilege, and standardized evidence requirements.

Challenges and Pitfalls of Third-Party Risk Management

Even well-designed TPRM programs encounter hurdles. Common pitfalls and how to address them include:

1. Questionnaire fatigue: Vendors receive endless ad hoc requests, leading to delays or incomplete responses.
2. Vendor resistance: Some suppliers push back on audits, assessments, or security documentation.
3. Data overload: Large enterprises managing hundreds or thousands of vendors struggle to track findings.
4. Overreliance on certifications and attestations: Reports like SOC 2 or ISO 27001 provide a snapshot, not continuous assurance.
5. Shadow IT and SaaS sprawl: Unapproved applications bypass procurement and evade monitoring.
6. Evolving threats: New risks from malicious browser extensions to AI-powered attacks demand adaptive approaches.

Overcoming these challenges requires a combination of automation, robust governance, executive sponsorship, and a pragmatic, risk-based approach.

Get Started with Third-Party Risk Management: How to Build a Risk-Based Vendor Management Program

A risk-based vendor management program ensures that security resources are focused where they can most effectively reduce enterprise risk. 

Rather than applying the same level of scrutiny to all vendors, organizations can scale their oversight based on data sensitivity, system access, and business criticality.

Follow these steps to get started.

Inventory and Map Vendors

Capture all vendors, services, systems touched, and data sensitivity. Map data flows to see where and how information moves.

Classify Vendors by Risk

Tier vendors (e.g., critical, high, medium, low) by access level, regulated data, and business impact.

Adopt a Scoring Model

Use questionnaires, breach history, and threat intel. Automate scoring for consistency.

Apply Controls Proportionate to Risk

Critical vendors require continuous monitoring and thorough due diligence. Medium-risk vendors necessitate periodic reviews. Low-risk vendors necessitate only minimal checks.

Embed Security in Procurement

Require security signoff before contracts. Standardize clauses for audits, breach notifications, subcontractor use, and termination/data return.

Automate Workflows and Evidence Collection

Use TPRM tools for assessments, remediation, and evidence collection in a central repository.

Integrate with Incident Response

Factor vendors into tabletop exercises and ensure escalation paths cover third-party failures.

How Spin.ai Can Help You Get Started with Third-Party Risk Management

Managing third-party risk across SaaS, browser extensions, and cloud services requires both signal and context. Spin.ai provides continuous monitoring and detection for SaaS exposures with SaaS Security Posture Management — including SaaS security misconfigurations, unauthorized third-party access, unsanctioned data usage, risky OAuth applications and  malicious browser extensions and unauthorized apps — helping teams discover threats early and prioritize risk based on actual impact.

Ready to strengthen your TPRM program? 

Take the SpinOne Product Tour and explore the Dangerous Browser Extension Tracker to understand this growing vendor-adjacent riskWhile you’re at it, request a demo of Spin.ai today to see continuous third-party monitoring in action.

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