Third-party relationships have always been a double-edged sword. While they bring efficiency, cost savings, and innovation, they also expose organizations to significant risks—cybersecurity threats, operational disruptions, regulatory fines, and reputational damage. In 2025, with the rapid expansion of digital ecosystems and stricter regulations like the Digital Operational Resilience Act (DORA) in the EU, third party risk assessment has become an unavoidable priority.
Let’s explore how organizations can enhance their TPRM assessment strategies through best practices, methodologies, and robust risk reporting.
The evolving TPRM landscape in 2025
Companies today rely on third-party service providers for critical business operations, cloud services, AI-driven automation, and financial transactions. However, this dependency broadens the attack surface, necessitating proactive and continuous risk management.
At the regulatory level, DORA has imposed stringent requirements on financial institutions and their ICT providers to ensure operational resilience. Non-compliance can result in heavy fines, legal action, or loss of market credibility. In addition, global data privacy laws such as GDPR (EU), CPRA (US), and various APAC regulations mandate strict oversight of third party vendor risk assessment practices.
Beyond regulations, stakeholders—customers, investors, and business partners—now demand transparency in vendor security and sustainability. ESG (Environmental, Social, and Governance) factors have become integral to the third party risk assessment process, with organizations scrutinizing their vendors’ carbon footprints, labor practices, and ethical governance.
As risk management expectations grow, businesses must evolve their third party risk management assessment programs to meet these new challenges.
Best practices in TPRM
A mature TPRM strategy isn’t just about performing vendor risk assessments once a year—it’s about ongoing monitoring, automation, and cross-functional collaboration.
One of the most effective approaches is establishing a centralized TPRM function that oversees risk assessment methodologies, contractual obligations, and reporting structures across the organization. Instead of treating TPRM as a fragmented, department-specific activity, organizations benefit from a unified governance model that standardizes how vendor risks are assessed and mitigated.
A crucial step in this strategy is adopting a risk-based tiering approach to classify vendors based on their criticality to operations and regulatory exposure. High-risk vendors—those with access to sensitive data or those whose failure could cause significant business disruption—must undergo deeper due diligence and continuous monitoring.
To illustrate the importance of risk-tiering, here’s a comparative view of how different vendor categories should be assessed:
Vendor risk classification and assessment focus
| Vendor Tier | Risk exposure | Assessment focus | Monitoring frequency |
| High-Risk Vendors | Critical infrastructure, cloud providers, core financial services | Cybersecurity (ISO 27001, SOC 2), regulatory compliance (DORA, GDPR), operational resilience | Ongoing, real-time |
| Moderate-Risk Vendors | SaaS providers, external consultants, data processors | Security audits, financial health, ESG compliance | Quarterly |
| Low-Risk Vendors | Non-sensitive service providers (e.g., office supplies) | General contract terms, reputational checks | Annually |
With third party risk reporting becoming an essential regulatory requirement, businesses must also move beyond static assessments. Investing in AI-powered risk management platforms allows organizations to analyze vast datasets, monitor vendor behavior in real-time, and predict potential disruptions before they occur.
Methodologies and frameworks for TPRM assessment
A robust third party risk assessment methodology relies on globally recognized frameworks that provide structure and standardization. Each framework offers different benefits depending on an organization’s industry and regulatory obligations.
Key methodologies for third party risk assessment
| Framework | Key focus | Best for |
| NIST Cybersecurity Framework (CSF) | Identify, protect, detect, respond, and recover from cyber threats | Organizations prioritizing cybersecurity resilience |
| ISO 27001 & ISO 27701 | Information security management and privacy protection | Companies handling large volumes of sensitive customer data |
| SOC 2 Type II | Security, availability, processing integrity, confidentiality, and privacy | Vendors providing cloud-based or financial services |
| DORA Regulatory Requirements | ICT risk management, penetration testing, operational resilience | Financial institutions and technology providers in the EU |
| COBIT (Control Objectives for Information and Related Technologies) | IT governance and enterprise risk management alignment | Organizations integrating TPRM with broader enterprise risk strategies |
Under DORA, financial institutions must ensure that their third party service provider risk assessment includes threat-led penetration testing (TLPT) and contractual obligations outlining vendor business continuity responsibilities. This means vendors must prove they can withstand cyberattacks, operational failures, and regulatory audits.
Risk reporting and metrics for effective TPRM
Risk reporting has moved from static spreadsheets to dynamic, real-time dashboards that provide clear, actionable insights. Organizations now rely on key metrics to measure vendor risk and compliance performance.
Here’s how organizations should structure their third party risk reporting frameworks:
Key metrics for TPRM risk reporting
| Metric | Definition | Why it matters |
| Vendor risk score | Aggregated risk rating based on cybersecurity, compliance, ESG, and financial stability factors | Helps prioritize vendors needing immediate attention |
| Time to risk detection | The average time it takes to identify and respond to vendor-related security incidents | Measures the effectiveness of continuous monitoring |
| DORA compliance status | Percentage of critical ICT vendors meeting DORA’s operational resilience requirements | Ensures financial institutions meet EU regulatory standards |
| Incident response coordination efficiency | How quickly an organization and its vendor can jointly respond to a security breach or disruption | Determines the effectiveness of contractual obligations and response planning |
With third party risk assessment best practices evolving, organizations must provide board-level summaries that highlight major vendor risks, regulatory obligations, and risk mitigation strategies.
Looking ahead: trends shaping TPRM in 2025 and beyond
The future of third party risk assessment will be shaped by AI-driven risk scoring, real-time compliance monitoring, and deeper regulatory scrutiny, particularly under DORA. Organizations should also anticipate:
- AI-powered vendor risk analytics: AI-driven tools will continue to refine predictive risk assessments using large datasets, including cyber threat intelligence and ESG performance scores.
- Stronger enforcement of DORA compliance: EU regulators are ramping up third party risk management assessment expectations, with non-compliant organizations facing potential fines and penalties.
- Convergence of TPRM with enterprise risk management (ERM): Organizations will integrate TPRM into broader ERM strategies to ensure a unified view of enterprise-wide risks.
- Cyber-insurance scrutiny: As cyber threats escalate, insurers will demand third party risk assessment process documentation before offering policies to organizations.
Final thoughts
In 2025, third party risk management assessment is no longer just an operational necessity—it’s a regulatory requirement, a stakeholder expectation, and a business imperative. Organizations that fail to evolve their third party vendor risk assessment frameworks risk severe financial, reputational, and regulatory consequences.
By adopting a risk-based approach, leveraging automation, and aligning with global risk management frameworks, businesses can build resilient third-party relationships while ensuring compliance with laws like DORA. The companies that succeed in TPRM will be the ones that proactively assess, monitor, and mitigate vendor risks—before they become business disruptions.
