Global enterprises today must navigate shifting trade policies, tightening regulations, geopolitical tensions, and unpredictable commodity prices. Against this backdrop, managing third-party relationships has become more complex – and critical – than ever before. As a result, the global third-party risk management market is growing rapidly, set to grow at a CAGR of 16.85%, reaching $25.12 billion by 2030 from $11.55 billion in 2025. These figures reflect that safeguarding and future-proofing operations requires stronger third-party governance and more robust frameworks for reducing risk in third-party contracts.
third-party risk management: key components and importance
Effective third-party risk management is more than just vendor evaluation. It is a structured process for identifying, assessing, mitigating, and monitoring risks throughout the lifecycle of external partnerships. Organisations today face a wide range of risks through third-party relationships, including cybersecurity threats and non-compliances, and the consequent operational disruptions, financial instability, and reputational harm.
The essential elements that contribute to strong third-party risk assessment and governance include:
- Security posture evaluation: Assessing a partner’s ability to protect systems and data from threats.
- Risk assessment: Identifying the type and level of risks involved in the partnership.
- Risk remediation: Implementing controls or adjustments to reduce exposure to those risks.
- Selection: Choosing vendors who meet not only technical requirements but also compliance and ethical standards.
- Continuous monitoring: Tracking risk exposure and performance throughout the relationship.
A strong third-party risk management framework helps organisations uncover vulnerabilities, assign clear accountability, and respond quickly to emerging threats. With risk intelligence embedded across the third-party lifecycle, businesses benefit in several critical ways:
- It strengthens regulatory compliance by ensuring third-party activities align with evolving legal and industry standards.
- It protects sensitive and business-critical data from breaches, misuse, and unauthorised access.
- It builds long-term trust by enhancing the organisation’s reputation among customers, partners, and regulators.
- It improves overall efficiency and agility by reducing disruptions tied to third-party failures.
- It lowers the risk of costly legal action and financial losses from compliance gaps or vendor-related incidents.
nine best practices for reducing risk in third-party contracts
Establishing strong controls in third-party relationships is essential for enhancing oversight and reducing risk exposure. Here are nine best practices that can help businesses in reducing risk in third-party contracts while building stronger, more reliable partnerships:
perform thorough due diligence
Before signing any agreement, it is vital to understand who you are working with. Effective due diligence goes beyond basic vetting; it includes financial reviews, ethical checks, cybersecurity audits, and legal verifications. This lays the groundwork for reducing risk in third-party contracts by identifying red flags early on.
build a structured risk management framework
A clear third-party risk management framework helps standardise evaluation, prioritise risks based on impact, and set controls in place. Aligning this framework with your organisation’s risk appetite ensures decision-making stays consistent and measured across departments.
set clear contract terms and communication lines
Well-drafted contracts protect your interests. Include precise clauses around data handling, liability, dispute resolution, and performance expectations. Maintain consistent communication to ensure third parties fully understand and uphold these terms.
plan for incidents and business continuity
No system is immune to failure. That is why strong governance includes having tested incident response plans and continuity strategies in place. These minimise the impact of disruptions – whether from cyberattacks, supply chain breakdowns, or legal issues.
monitor third-party performance regularly
Ongoing evaluation is key to detecting issues before they escalate. Regular security reviews, audits, and performance benchmarks help assess whether vendors continue to meet standards. Build continuous controls monitoring into the relationship from the outset.
prioritise data security and privacy
With third parties often handling sensitive information, robust data protection is critical. Establish secure access protocols, audit trails, and encryption standards. Ensure vendors follow your privacy and cybersecurity policies rigorously.
strengthen internal compliance awareness
Effective third-party governance starts from within. Cross-functional teams must understand the risks and responsibilities tied to vendor relationships. Regular training and leadership involvement help embed a culture of compliance.
maintain transparent documentation
Clear documentation ensures accountability. Track every step – assessments, communications, decisions, and revisions. This not only supports better oversight but also provides audit trails that help during regulatory reviews or disputes.
continually review and adapt your strategy
Markets change, and so do risks. Periodically reassess your third-party governance approach to align with new threats, technologies, or compliance demands. Agility in your approach strengthens resilience and competitiveness while reducing risk in third-party contracts.
Infosys BPM offers deep expertise in third-party governance, helping businesses streamline risk oversight and enhance compliance with an AI-driven ecosystem. With comprehensive legal process management solutions, clients gain access to proven tools and frameworks for managing contracts, performing due diligence, and automating risk assessment across industries and geographies.
conclusion
Robust third-party governance and strong risk controls have become essential pillars of business stability. With the right frameworks in place, enterprises not only ensure compliance and data protection; they also build lasting trust with partners and stakeholders. Adopting a proactive approach to third-party risk management unlocks resilience, agility, and long-term success in today’s volatile global market.
