Third Party Risk Management: Know When to Walk Away
You’ve tailored your due diligence to match your risk. Now the answers are coming in - and some of them raise red flags. What next?
Two critical gaps undermine most third party risk programs:
- Knowing when to walk away
- Making assessment data useful beyond procurement
Some warning signs point to deeper issues that controls alone can’t fix:
- Scope confusion: Can’t articulate what data they need or how it supports your process.
- Control evasiveness: Vague or defensive responses to (reasonable) security questions.
- Responsibility gaps: No clarity on who owns which component of incident response, compliance, or data protection.
- Financial instability: Signs of distress that introduce continuity risks beyond technical controls.
- Integration blindness: No idea how their systems interact with yours - or what that might break.
Not every red flag is a deal-breaker. The key question: is the risk manageable - or does it signal deeper incompatibility?
- Manageable risks can often be addressed through contract terms, control implementation, or monitoring.
- Fundamental incompatibility - like scope confusion or transparency resistance - typically reflects cultural or structural issues that contracts rarely fix.
And context matters. A startup’s weak financials may be acceptable for a low-risk marketing tool, but not for a core infrastructure provider. The more critical the service, the higher your standards must be - across all dimensions.
Done well, your due diligence becomes more than just a procurement checkbox - it becomes the foundation for operational oversight. Build your documentation to support:
- Contracting: Feed findings into SLAs, security appendices, and exit terms
- Ongoing monitoring: Use assessment results as baselines for vendor monitoring
- Future assessments: Create consistency through reusable methods and historical data
- Vendor management: Inform tiering, governance, and lifecycle planning
Due diligence should create lasting value. The data you gather today should fuel smarter vendor decisions tomorrow - from onboarding through renewal and eventual exit.
Next: Contracting With red flags identified and documentation structured for long-term use, we’ll turn to the next challenge: embedding risk controls into vendor agreements from day one.