7 Steps for Third-Party Risk Management in SMBs

Want to protect your business from vendor risks? Third-party risk management (TPRM) helps small and medium-sized businesses (SMBs) avoid disruptions, ensure compliance, and safeguard sensitive data. Here's a quick guide to managing risks from cloud vendors:

• 1. List Vendors: Keep an up-to-date record of all vendors, services, and access levels.
• 2. Assess Security: Check vendors' certifications, encryption, and incident-response protocols.
• 3. Categorise Risks: Group vendors by risk level (Critical, High, Medium, Low) and apply appropriate controls.
• 4. Set Controls: Define access restrictions, encryption standards, and performance metrics.
• 5. Monitor Performance: Track uptime, incidents, and compliance regularly.
• 6. Record Compliance: Keep contracts, audit trails, and security certificates organised.
• 7. Plan for Incidents: Prepare a clear response plan for vendor-related issues.

Quick Comparison: Manual vs AI Risk Management

Switching to AI tools for TPRM can save time, improve security, and reduce downtime. Start managing third-party risks today to keep your SMB secure and compliant.

Why are Organizations Not Managing Third Party Security Risk

Basic Steps of Risk Management

Managing third-party risks is a continuous process involving four main steps: identify, assess, control, and monitor risks.

Key Risk Management Steps

• Risk Identification: Compile a list of all third-party vendors, map out data flows and access points, and identify potential vulnerabilities.
• Risk Assessment: Examine vendors' security measures, check their compliance certifications, and evaluate how their operations might impact your business.
• Control Implementation: Use monitoring tools, set up access controls, and establish procedures for responding to incidents.
• Continuous Monitoring: Keep an eye on vendor performance through metrics, watch for security alerts, and stay updated on compliance changes.

UK Compliance Requirements

Small and medium-sized businesses (SMBs) in the UK need to meet specific regulatory requirements:

• UK GDPR and DPA 2018: Maintain records of data processing activities and include data protection clauses in vendor contracts.
• Sector-Specific Regulations: Financial services must adhere to FCA outsourcing guidelines; healthcare organisations should follow NHS Digital DSPT; businesses handling payment-card data need to comply with PCI DSS.
• Contracts: Vendor agreements should outline service-level objectives (SLOs), security standards, incident-reporting processes, and data-handling protocols.

These essentials lay the groundwork for the seven practical steps we’ll explore next.

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7 Steps to Manage Third-Party Risk

To strengthen your cloud vendor security, follow these seven practical steps:

1. List All Vendors

Centralise vendor information in one tool, including:

• The scope of services provided
• Levels of data access
• Integration points
• Contract renewal dates
• Support contact details

Review this list every quarter to identify any new or updated vendors.

2. Assess Vendor Security

Check for key security measures like ISO 27001 or SOC 2 certifications, encryption standards, backup systems, recovery processes, and incident-response protocols.

3. Categorise by Risk Level

Organise vendors by their risk profile and set controls accordingly:

4. Define Control Plans

Create tailored control measures for each risk tier. This might include access restrictions, service-level objectives (SLOs), encryption protocols, scheduled reviews, and performance metrics.

5. Track Vendor Performance

Regularly monitor vendor performance against agreed metrics such as uptime, security incidents, response times, and any service disruptions. Keep detailed records of these findings.

6. Record Compliance Artefacts

Maintain a thorough record of compliance-related documents, including:

• Data processing agreements
• Assessment reports
• Incident logs
• Performance metrics
• Audit trails
• Security certificates

7. Establish an Incident Response Plan

Prepare a clear plan to manage vendor incidents. This should include steps to identify, report, and resolve issues. Use AI-enhanced tools alongside human expertise and involve specialist cloud operations support when needed.

For example, Critical Cloud clients have shared their experiences:

"Before Critical Cloud, after-hours incidents were chaos. Now we catch issues early and get expert help fast. It's taken a huge weight off our team and made our systems way more resilient." – Head of IT Operations, Healthtech Startup

"As a fintech, we can't afford downtime. Critical Cloud's team feels like part of ours. They're fast, reliable and always there when it matters." – CTO, Fintech Company

Next, we'll explore the differences between manual and AI-driven risk management.

Comparing Manual and AI Risk Management

When looking at manual versus AI-driven risk management, the differences are clear. Manual methods depend on scheduled reviews and human oversight, which can slow down detection and response times. On the other hand, AI-powered solutions provide continuous monitoring and can address issues much faster.

Here’s a breakdown of the key differences:

• Incident Detection: Manual methods rely on periodic checks, while AI systems provide real-time alerts.
• Risk Assessment: Traditional approaches use interval-based reviews, whereas AI enables continuous risk scoring.
• Response Capability: Manual systems often offer limited support during office hours, but AI solutions operate 24/7.
• Expert Integration: With manual methods, human escalation is on-demand. AI solutions, however, often include direct access to embedded engineers.

Real-World Impact

"Critical Cloud plugged straight into our team and helped us solve tough infra problems. It felt like having senior engineers on demand." - COO, Martech SaaS Company [3]

Conclusion: Effective Risk Management Steps

Strong third-party risk management is essential for keeping SMBs resilient in cloud environments. Comparing manual methods with AI-driven approaches shows that AI tools bring improved efficiency, accuracy, and system availability to vendor risk management.

Key Takeaways

To manage third-party risks effectively, focus on these practices:

• Real-Time Monitoring: Move beyond periodic reviews by implementing systems that continuously assess vendor risks.
• Automated Documentation: Use automation to maintain detailed compliance records effortlessly.
• Incident Response Planning: Set up clear protocols for handling incidents, ensuring 24/7 readiness.

These strategies align with the seven core steps of third-party risk management, making them applicable throughout the vendor lifecycle.

The shift from manual processes to AI-enhanced solutions has been particularly advantageous in highly regulated industries like FinTech and Healthtech. These sectors, where system reliability is critical, have seen better vendor risk management and reduced workload for teams by adopting AI tools.

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