Third-party risk management (TPRM) has reached a critical inflection point. Traditional approaches focused on compliance assessments and security questionnaires are proving insufficient for today's interconnected business environment. From ransomware attacks to supply chain failures and cloud outages, high-profile disruptions have exposed a fundamental gap: Organizations are measuring vendor security, but not vendor resilience.
When a single vendor goes down, the ripple effects can be catastrophic for every business that relies on them. This is forcing organizations to rethink their approach to TPRM and expand their focus from reactive risk assessments and compliance checkboxes to proactive resilience and business continuity. It is not enough to ask if a vendor is secure—the better question is if an organization can withstand the operational impact if that vendor is taken offline tomorrow.
Most TPRM programs excel at evaluating whether vendors protect data but struggle to assess whether they can maintain operations under pressure. A vendor might have pristine SOC 2 reports and ISO certifications yet lack the recovery capabilities to withstand a major disruption. This gap becomes critical when you consider that modern businesses often depend on dozens of third-party services for core operations.
The Change Healthcare breach illustrated this perfectly. As a payment intermediary handling billions in medical claims, the company's operational failure affected its business as well as thousands of healthcare providers who could not process payments, verify insurance or fill prescriptions. The compliance frameworks that validated Change Healthcare's security posture had not captured its role as a critical dependency for an entire industry.
A Framework for Resilient TPRM
Building operational resilience requires a systematic approach that goes beyond traditional risk assessments. The following is a comprehensive framework for strengthening your TPRM program:
1. Map Critical Dependencies and Business Impact
Start with a thorough dependency mapping exercise that identifies which vendors you use and how critical they are to your operations. Creating a dependency matrix can help simplify this process. Categorize vendors by asking:
- What business processes would halt if this vendor went offline?
- How difficult would it be to replace this vendor or implement workarounds?
- How would a vendor outage affect your customers, partners or stakeholders?
Business impact scores can be based on revenue loss, operational disruption and regulatory exposure. This helps prioritize where to focus your resilience efforts. An organization should also trace and document how a vendor failure would impact various areas of the business. Often, the most critical dependencies are not obvious until you map the connections.
2. Expand Risk Assessments Beyond Security Controls
When evaluating third parties, go beyond cybersecurity policies. Ask about their disaster recovery plans, recovery time objectives and recovery point objectives. Additionally, ask them to demonstrate backup systems and data replication strategies, incident response procedures and escalation protocols and business continuity testing frequency and results.
If a vendor is unwilling or unable to provide this information, that is a red flag. Operational transparency is now as important as technical security and vendors should be willing and able to demonstrate their monitoring capabilities, communication protocols during incidents and historical performance during disruptions.
3. Strengthen Internal Contingency Planning
Organizations cannot control whether a vendor experiences problems, but they can control their response. The most resilient organizations prepare for vendor failures with the same rigor they apply to other business continuity scenarios. Each critical vendor needs a vendor-specific contingency plan, including pre-identified alternative providers with which you have established relationships, manual workarounds for key automated processes and clear decision criteria for when to activate backup plans.
The goal is to build operational buffers before they are needed, which means maintaining relationships with secondary vendors, keeping backup systems ready for activation and training staff on emergency procedures. Organizations should also account for the hidden costs of vendor disruptions including overtime, expedited services, revenue loss and customer retention efforts. The key is not leaving it up to contingencies that take weeks to implement or leave an organization scrambling for emergency funds in the middle of a crisis.
4. Implement Dynamic Risk Monitoring
Annual risk assessments might be inadequate in today's fast-moving threat landscape. Modern TPRM requires continuous monitoring that spots problems before they become crises. The best monitoring systems help organizations understand patterns, predict issues and continuously refine vendor risk assessments based on real-world performance.
Consider deploying comprehensive monitoring that tracks both security and operational health indicators, including automated alerts for vendor security incidents and performance degradation, financial stability monitoring through credit ratings and news feeds, and social media and industry intelligence for early warning signs.
If an organization is just getting started with a TPRM framework, it should focus on calibrating alert systems to minimize noise while maximizing signal. Too many false alarms and a team becomes numb to warnings; too few and a team is caught off guard when genuine threats emerge. The sooner an organization knows a vendor is compromised, the faster it can activate contingency plans.
5. Foster Collaborative Vendor Relationships
The strongest vendor relationships are built on shared responsibility for resilience rather than one-sided auditing. Treat critical vendors as strategic partners invested in mutual success and establish transparent communication protocols that define the method and timeframe for incident notification, what information they will provide during disruptions and clear escalation paths for critical issues.
An effective way to strengthen a vendor relationship is to invite them to engage in joint resilience planning through regular business continuity exercises, shared threat intelligence and co-developed incident response procedures. When vendors understand how their failures impact the business they work with, they are more likely to invest in preventing those failures. Organizations can also design service-level agreements that reward resilience, preferred vendor status for operational excellence and financial penalties for avoidable disruptions.
6. Build Organizational Resilience Capabilities
Internal capabilities determine whether contingency plans succeed or fail under pressure. The most prepared organizations invest in people, processes and governance structures that can execute effectively during vendor crises.
Team members from the IT, legal, business continuity and communications departments should be part of an active cross-functional response team. The key here is having the right people on the team. They need to work together regularly and understand each other's capabilities before a crisis hits. Realistic exercises that go beyond theoretical tabletop discussions can include scenario-based drills that simulate actual vendor failures, technical exercises that test backup system activation and communication drills for managing stakeholder expectations.
Every organization needs clear governance structures that define decision-making authority during crises. This includes who can authorize expensive backup systems, approve emergency contracts and speak for the organization during outages. Without clear governance, vendor crises often become organizational crises.
The organizations that adapt to current TPRM needs will be the ones that thrive in an increasingly interconnected and disruption-prone business environment. Those that cling to compliance-only approaches risk being caught unprepared when the next major vendor incident occurs.