Siva Padaychee, Head of GRC and Business Assurance at e4.
For many years, third-party risk was largely viewed as a procurement responsibility, focused on supplier selection, contractual agreements and pricing. Today, however, the conversation has shifted considerably. As businesses become more dependent on cloud platforms, software as a service (SaaS) offerings and outsourced services, third-party risk has become a fundamental business continuity concern.
The challenge is that organisations are increasingly reliant on providers that are deeply embedded in their operations. Moving away from an underperforming vendor is no longer as straightforward as it once was, particularly where proprietary technology, complex integrations and lengthy migration processes are involved. When a critical supplier experiences a disruption, the consequences can extend well beyond the immediate service failure, potentially resulting in security vulnerabilities, reputational damage and financial losses.
One of the most overlooked aspects of third-party risk management is the exposure created by fourth parties, the suppliers and service providers that support our own vendors. An organisation may have conducted extensive due diligence on its primary supplier, but what happens when that supplier experiences a service interruption because one of its own partners has failed?
This interconnectedness means that a business can be exposed to risks well beyond the relationships it directly manages. Other common blind spots include change risk, where a supplier makes technology updates without adequate communication, potentially disrupting client operations, and concentration risk, where multiple critical business functions depend on a single provider.
In the latter scenario, a disruption affecting one supplier could have a widespread impact across the organisation. These dependencies are not always immediately apparent, particularly in businesses where individual departments manage their own vendor relationships without a consolidated view of the organisation's overall exposure.
A common misconception is that completing a thorough supplier assessment at onboarding is sufficient to manage third-party risk. In reality, no business relationship remains static indefinitely. Suppliers evolve, ownership structures change, services are modified and the broader risk environment shifts.
Prudent third-party risk management therefore requires ongoing oversight, with the frequency and depth of reviews informed by the criticality of the service being delivered. While cyber security credentials remain important, organisations should also consider a supplier's financial stability, business continuity and disaster recovery capabilities, regulatory compliance practices, geopolitical exposure, environmental, social and governance (ESG) policies, and governance structures.
The objective is to understand not only whether a supplier can deliver a service today, but also whether it can continue to do so under changing circumstances.
An important principle of effective third-party risk management is that outsourcing a service does not mean outsourcing accountability. Ultimately, the business executive who requested the service and approved the contractual relationship remains responsible for the associated business risk.
The three lines model, commonly used in banking and risk management, helps clarify these responsibilities. The business owns and manages the risk, governance, risk and compliance (GRC) functions provide oversight and guidance, while internal audit offers independent assurance that operations align with organisational policies and relevant industry practices.
This distinction is particularly important when assessing critical supplier relationships. Executives need to understand how many essential services depend on a single provider, whether appropriate service-level agreements (SLAs) are in place and, crucially, what alternatives exist if the relationship needs to be terminated. An exit strategy is of little practical value if the organisation has no viable alternative or requires years to migrate its operations.
Third-party risk should be a regular consideration at executive and board level, particularly when suppliers underpin critical business services. Boards need to understand which vendors are essential to ongoing operations and what would happen if one of them failed to deliver services today, tomorrow or for an extended period.
This includes understanding service restoration plans, exit strategies, concentration risks and how supplier incidents or emerging threats are escalated to oversight committees. An organisation's risk appetite should also provide clear direction on how potentially high-risk supplier relationships are assessed and managed.
A useful starting point is to ask a simple question: if this supplier disappeared tomorrow, would our clients notice? If the answer is yes, further consideration is needed. The handling of sensitive data, the availability of alternative providers and the complexity of replacing a supplier can all indicate how deeply embedded that relationship has become.
As businesses continue to embrace interconnected technology and outsourced services, third-party risk management must evolve beyond procurement and contractual compliance. The real measure of effective oversight is not simply knowing who our suppliers are, but understanding how their failures could affect our business, and being prepared to respond when they do.