TPSIRR – Third Party Service Inherent Risk Rating

Inherent Risk is the natural level of risk that is part of any process or activity — given an existing understanding of how the service is being orchestrated and some detail of the components of its delivery.  Inherent risk rating should take place prior to the evaluation of controls, considering both inherent and residual risks. It is important to understand the organization’s risk appetite in relation to these risks to effectively guide future risk management planning and investment.

Third-Party Service Inherent and Residual Risk Rating

Our TPSIRR solution provides a consistent technique for practitioners and other risk stakeholders to identify third-party risks inherent in the services being provided to them through comprehensive risk assessment. The product then scores these risks in an organization-controllable way and recommends a scoped SIG Questionnaire or extended assessment. Additionally, risk analysis plays a crucial role in the TPSIRR solution by evaluating and managing potential risks within an organization, utilizing tools like a risk matrix to quantify and describe levels of risk.

The TPSIRR gives practitioners:

Vendor Risk Scoring in accordance with an organization’s customizable risk classifications, including residual risk scores to quantify the effectiveness of implemented controls

Quick-Glance Assessments using RAG reporting for levels of risk (Red=High, Amber=Moderate, Green=Low)

Due-diligence scoping and frequency planning including identification of the appropriate SIG Questionnaire (Lite, Core, Full)

Risk Tiering derived from inherent risk ratings

Inherent Risk Ratings (IRR) across vendor portfolios

Areas Of Focus (including controls) for comprehensive risk assessments and risk-based due diligence

Reporting on the types of third-party risks introduced to an organization by third-party vendors .and the necessary risk controls to mitigate them

Dashboarding tracking on Inherent Risk Ratings (IRR) completed across vendor portfolios

TPSIRR Areas Of Impact

The TPSIRR “Areas of Impact” and the SIG Questionnaire risk domains they encompass:

The TPSIRR solution helps in identifying and managing residual risk across various risk domains. It also helps to reduce residual risk by implementing effective control measures, ensuring that the remaining risks are minimized to an acceptable level. Understanding an organization’s risk tolerance is essential for effective risk management and decision-making. Residual risk refers to the remaining risks that persist even after implementing various cybersecurity controls. For example, despite strong password policies, some risk remains due to potential human error or sophisticated cyber attacks.

Learn about the SIG Risk Domains.

Inherent Risk Rating: Frequently Asked Questions (FAQ)

How do you assess inherent risk? Inherent risk is assessed by evaluating the natural level of risk exposure present in a third-party service before any controls are applied. This involves understanding the service’s components, the processes involved, and the potential impact on your organization. Assessing inherent risk exposure helps in identifying areas that require more stringent risk management strategies.

What is an example of inherent risk?An example of inherent risk could be the potential data breach risk associated with using a third-party cloud service provider. Even before any security measures are in place, the very nature of handling sensitive data through an external provider introduces inherent risk.

How do you calculate inherent risk? Inherent risk is calculated by considering the likelihood of a risk occurring and the potential impact of that event on your organization. This is done before considering any controls or mitigation strategies that might reduce the risk. Understanding the probability of a risk occurring, paired with its potential impact, is essential for effective risk evaluation.

What is standard inherent risk? Standard inherent risk refers to the baseline level of risk that is typical for a particular type of service or activity. This serves as a benchmark for organizations to compare the inherent risk levels of their own third-party engagements.

What if inherent risk is high? If inherent risk is high, it indicates a significant level of risk that must be carefully managed. Organizations should prioritize thorough risk assessments (preferably using the SIG Questionnaire) and implement strong controls to mitigate these risks effectively.

How do you solve inherent risk? While inherent risk cannot be completely eliminated, it can be managed through a combination of risk controls, ongoing monitoring, and regular assessments to ensure that the risk is kept within acceptable limits.