Third-Party Risk


A company’s offices could follow airtight security practices and have a comprehensive keycard system that keeps unwanted and potentially malicious visitors out. But none of that will matter if one of the hired painters leaves their keycard on the bus, and that card finds itself in the possession of a competitor or some other unauthorized party. The painter is a third-party, and giving them access to the company offices creates third-party risk. Giving someone else access to your office creates the simplest kind of third-party risk; human error. Since you don’t train your contractors, you would have no way of knowing if they lose important assets or are careless with confidential information.

Nearly every business must outsource some work to be able to compete with other businesses. Outsourcing work to third-party contractors is an easy way to save money and time that could be used to enhance a company’s products. However, outsourcing work introduces third-party risk to the business. Third-Party risk is the risk posed to a company by the use of a third-party contractor that needs access to company data or privilege.

Types of third-party risk

Third-party cyber risk

If the third party is a software-as-a-service (for example, a mail service), your company could be harmed if there is a vulnerability in that software. Sensitive information often gets exchanged over email, so you are trusting that your email provider can keep your data and messages safe.

Increased complexity

Buying a third-party service to integrate into your platform causes complexity risk. If your platform is more complex, there is more room for errors.

Reduced control over operations

By hiring a third-party contractor, you are saving time for yourself and your employees. But you are also relinquishing some control over operations that could affect your business. 

Overreliance on a third party

If a third-party software or contractor is essential to your business, you are also counting on that third party to stay operational. Third-parties that are heavily relied on should have a reputation of being consistent and stable because if a third-party service becomes unusable, your business operations could slow down or stop.

Third-party risk management

Incorporating third-party software or contractors into business is risky. Nevertheless, utilizing third parties is important to avoid costly horizontal scaling. Companies employ third-party risk management techniques to reduce the danger posed by relying on other businesses.

Third-party risk management techniques include risk assessment, limiting access, and a vetting process.

Risk assessment

To determine whether relying on a certain third party is a good idea, you should consider the third party’s importance to business and reputation.

Limiting access

If the third party doesn’t need to access information to perform its tasks, then that information should not be shared. A risk assessment is required to make an effective policy limiting third-party access to company permissions and data.


Vetting potential contractors is important to avoid high-risk third parties. While vetting, a risk manager should consider:

  • Does the third party associate with untrustworthy fourth parties?
  • Does the third party practice meticulous record-keeping?
  • If the third party requires personally identifiable information, check for ISO 27001 and/or SOC 2 compliance.
  • Reputation is contagious, so you should ensure that the third party is reputable and has no past controversies.

Lastly, vetting should be ongoing. Staying informed of your third-party contractor’s actions could prevent potential major consequences from errors.

Conclusion for third-party security risk

To conclude, hiring third parties is risky, but remains essential for startup companies and medium-sized businesses. But with proper management and a proficient risk manager, the third-party risk is greatly reduced.