7 Third-Party Risk Assessment Best Practices You Can’t Ignore in 2025
In today’s interconnected world, your business’s security is only as strong as your weakest link—and often, that link is a third-party vendor. From the SaaS platform that runs your payroll to the HVAC contractor with network access, you rely on a complex web of outside partners. While these relationships drive efficiency and innovation, they also open the door to significant risks. In fact, nearly half of all data breaches in 2024 were linked to third-party access vulnerabilities.
This is where a robust third-party risk assessment (TPRA) comes in. It’s no longer a simple, check-the-box exercise but a strategic imperative for business resilience. A strong TPRA program helps you identify, evaluate, and mitigate potential cybersecurity, financial, operational, and compliance risks your vendors introduce.
Feeling overwhelmed? You’re not alone. We’ve broken down the process into seven essential best practices to help you build a modern, effective, and scalable third-party risk management framework.
1. Build a Comprehensive Vendor Inventory
You can’t protect what you don’t know you have. The first and most critical step is creating a complete, centralized inventory of every third-party relationship. Without this, organizations face visibility gaps, redundant efforts, and uncontrolled risk. A startling 73% of organizations with inefficient TPRM programs have suffered reputational damage as a result.
Start by forming a cross-functional team with members from IT, procurement, legal, and finance to consolidate vendor data from across the business. This process often uncovers “shadow IT”—unauthorized software or services that pose a significant threat. Your centralized register should document key details for each vendor, including the services they provide, the data they access, and their criticality to your operations.
2. Tier Your Vendors Based on Risk
Not all vendors are created equal, and they shouldn’t be treated that way. A one-size-fits-all approach to assessment is inefficient and ineffective. The best practice is to categorize or tier your vendors based on their potential risk and business impact. This allows you to focus your resources where they matter most.
A common approach is a three-tiered system:
Tier 1 (High-Risk): Critical vendors with access to sensitive data or those essential for business operations. These require the most stringent due diligence and continuous monitoring.
Tier 2 (Medium-Risk): Vendors with moderate importance and data access. They undergo a standard assessment process.
Tier 3 (Low-Risk): Vendors with minimal data access and operational impact, requiring a more streamlined assessment.
This risk-based approach helps organizations reduce assessment costs by as much as 38% while improving critical vendor coverage by 27%.
3. Standardize Your Due Diligence Process
Consistency is key to effective risk evaluation. Standardizing your due diligence process ensures every vendor is assessed against the same core criteria, providing a clear basis for comparison. While a standard framework is crucial, the assessments themselves should be tailored. Generic questionnaires often fail to capture specific risks. In fact, 68% of organizations now use customized questionnaires for different vendor types.
Modern due diligence goes beyond simple questionnaires. It involves a layered approach that validates self-reported information with external evidence. Leading practices include:
Verifying security certifications like SOC 2, ISO 27001, or HIPAA compliance.
Conducting automated security scans to check for vulnerabilities.
Reviewing third-party audit reports and financial statements.
4. Embrace AI and Automation
Static, annual assessments are a thing of the past. With 68% of third-party breaches occurring between scheduled reviews, continuous monitoring has become non-negotiable. This is where technology, particularly Artificial Intelligence (AI), becomes a game-changer.
AI-powered platforms can automate and enhance nearly every aspect of the risk assessment lifecycle:
Automated Questionnaires: AI can pre-populate responses by analyzing a vendor’s existing security documentation, reducing the manual effort for your vendors and your team. For instance, Targhee Security’s AI-powered automation can cut assessment completion time by up to 80% by drawing answers directly from approved documents.
Continuous Monitoring: AI can monitor a vendor’s security posture in real-time, sending alerts when a new vulnerability is detected or a security rating drops.
Predictive Analytics: Advanced AI models can analyze vast datasets to predict the likelihood of a vendor breach with remarkable accuracy.
By automating repetitive tasks, you free up your security team to focus on strategic risk management and remediation.
5. Integrate Regulatory and Compliance Demands
The regulatory landscape is constantly evolving, with frameworks like the EU’s Digital Operational Resilience Act (DORA) and California’s CPRA imposing strict third-party risk requirements. Non-compliance can lead to severe penalties, making it essential to embed these requirements into your vendor lifecycle.
This means your contracts must be robust, with clear clauses covering data protection, audit rights, and breach notification timelines. For financial institutions, DORA specifically mandates detailed oversight of ICT providers, including exit strategies and resilience testing. A centralized platform can help streamline compliance by mapping vendor controls to multiple regulatory frameworks. With a solution like Targhee Security’s Trust Center, organizations can provide auditors and customers with secure, self-service access to real-time compliance documentation for frameworks like SOC 2, HIPAA, and GDPR, simplifying audit readiness.
6. Formalize Documentation and Reporting
If it isn’t documented, it didn’t happen. Comprehensive documentation is your proof of due diligence. Organizations with mature documentation practices see 73% fewer audit findings. This isn’t just about storing assessments; it’s about creating an audit-ready trail of every decision and action.
Your documentation should include a risk register, evidence of control testing, vendor performance scorecards, and remediation tracking. Equally important is how you report this information. Reporting should be tailored to the audience:
Executive Leadership: High-level dashboards showing strategic risk exposure and program ROI.
Operational Teams: Detailed reports on control effectiveness and remediation priorities.
Board of Directors: Summaries of regulatory compliance status and emerging threats.
Automated reporting tools can save significant time and provide stakeholders with clear, up-to-date insights.
7. Plan for the Entire Vendor Lifecycle
Third-party risk management doesn’t end after the initial assessment. It’s a continuous cycle that spans from onboarding to offboarding. Your framework should include processes for the entire vendor relationship.
Ongoing monitoring is a critical piece of this. Event-driven reassessments should be triggered by events like a security incident, a merger, or a significant change in the services a vendor provides. Don’t forget about fourth-party risk—the risk posed by your vendors’ vendors. An estimated 58% of third-party breaches originate from a fourth-party relationship, highlighting a critical visibility gap many programs miss.
Finally, have a clear offboarding process. When a contract ends, you must ensure that all access is revoked, data is returned or securely destroyed, and all contractual obligations have been met. A structured exit plan prevents lingering access points that could be exploited later.
By adopting these best practices, you can transform your third-party risk assessment process from a reactive, compliance-driven task into a proactive, strategic function that protects your organization and builds a more resilient business.
Putting these best practices into action can be a significant undertaking, especially when manual processes create bottlenecks. To see how AI-powered automation can eliminate the friction of security questionnaires and help you build a centralized Trust Center for compliance, learn more about Targhee Security.
