The Dawn of Third-Party Risk Management
Third-Party Risk Management (TPRM) has come a long way since its inception. The concept of managing risks associated with third-party vendors, suppliers, and partners is not new, but the formalized approach to TPRM has evolved significantly over the years. In this blog post, we will delve into the development history of TPRM, highlighting key milestones, and statistics that demonstrate its growing importance.
Early Days: The 1990s and the Emergence of TPRM
The 1990s saw the beginning of TPRM, primarily driven by the need to manage risks associated with outsourcing and globalization. As companies started to outsource non-core functions to third-party vendors, the need to manage risks related to these relationships became apparent. According to a study by the International Association of Outsourcing Professionals (IAOP), the global outsourcing market grew from $12.5 billion in 1990 to $104.4 billion in 2000, highlighting the rapid growth of third-party relationships.
In the early days, TPRM was largely reactive, focusing on managing risks after they had materialized. Companies relied on ad-hoc processes and manual assessments to manage third-party risks. However, this approach proved inadequate, and companies soon realized the need for a more proactive and structured approach to TPRM.
The Turning Point: Regulatory Requirements and Standards (2000s)
The 2000s saw a significant shift in the TPRM landscape with the introduction of regulatory requirements and standards. The Sarbanes-Oxley Act (SOX) in 2002, the Payment Card Industry Data Security Standard (PCI DSS) in 2004, and the Health Insurance Portability and Accountability Act (HIPAA) in 1996, among others, highlighted the importance of managing third-party risks.
These regulations and standards emphasized the need for companies to have a robust TPRM program in place. According to a survey by the Shared Assessments Program, 71% of companies reported having a TPRM program in place by 2008, up from 22% in 2004.
The Emergence of TPRM as a Formal Discipline (2010s)
The 2010s saw TPRM emerge as a formal discipline, with the establishment of industry-wide standards and guidelines. The Shared Assessments Program’s Standardized Information Gathering (SIG) questionnaire, introduced in 2005, became widely adopted, providing a standardized framework for assessing third-party risks.
The third-party risk management market grew significantly during this period, with the global market size increasing from $2.1 billion in 2010 to $6.4 billion in 2019, according to a report by MarketsandMarkets.
The Current State: TPRM in the Digital Age
Today, TPRM is a critical component of an organization’s risk management framework. The rapid digitalization of businesses has introduced new risks, such as cybersecurity threats, data breaches, and intellectual property theft. According to a report by Ponemon Institute, 61% of companies reported experiencing a data breach caused by a third-party vendor in 2020.
To effectively manage these risks, companies are adopting advanced TPRM solutions, leveraging technologies like artificial intelligence, machine learning, and cloud-based platforms. These solutions enable real-time monitoring, automated risk assessments, and continuous vendor evaluation.
Conclusion
The development history of Third-Party Risk Management is a story of growth, innovation, and adaptation. From its early days as a reactive, ad-hoc process to its current state as a formal discipline, TPRM has come a long way. As regulatory requirements continue to evolve and new risks emerge, the importance of TPRM will only continue to grow.
We would love to hear your thoughts on the evolution of TPRM. Please leave a comment below sharing your experiences, insights, or questions about Third-Party Risk Management.