A risk develops when there is a threat exploiting the vulnerability.

Nowadays the security concerns have reached a level that even the trusted associates or the third-party vendors can be exploited by hackers. Most of the large organizations have focused on building their own cybersecurity defenses. A deep understanding of the security profile of the vendors and contractors have become critical in protecting devices as well as data.
There are certain potential risk that may evolve when we get involved in a third party relationship such as :

Strategic risk: When the products provided by the third party does not help in achieving the strategic goal of the organization, the process of aligning the external parties with the vision of the organization fails

Reputational risk: Reputation is created by satisfied customers. The risk is evolved when the customers remain dissatisfied, inappropriate recommendations are done, security breaches involving data of customers take place.

Operational risk: When the internal processes of an organization is related to external parties like banking institution there can be a risk of failed internal processes, people or events.

Credit Risk: Credit risk is the risk that a third party, or any other creditor necessary to the third party relationship, is unable to meet the terms of the contractual arrangements with the financial institution.

Compliance risk :The risk arising due to the violations of laws, noncompliance with internal policies or procedures, or regulations, or with the business standards of the organizations .

There can be several other potential risk that may be added to the list since the third party risk depend on the institution or organization it is linked to. Identifying the potential risk plays a major role in TPRM. Once the risk is identified assessing the risk can be managed easily.

Third Party Risk Management can be carried out by monitoring and assessing the risk present in the relationship that have been built with other associates other that the parent organization.

When GDPR came into effect the assessment the third parties were divided as data processor and data controllers. Data Processors can be held directly liable for the protection of personal data while data controllers are supposed to check the contracts are in place governing data processors According to the risk the party possess the risk score was identified for each of the third party.

The Risk assessment process should unify all these three aspects of the third parties. The performance and stability of the third party with the process involved while interacting with third party and resilience-based risk assessment to determine the practices evolved while facing a disruption.
Risk assessment is the initial point of decision making before entering to a relationship with the third party. The first step in the risk assessment process should be to ensure that the proposed relationship is aligned to the strategic planning and overall business strategy of the organization.

Next the management should analyze the interest of the third party. The risk score has to be rated for significant process with the comparison between the proposed third-party relationship to other vendors, also other product offerings. We have to perform a warranted analysis of the services of a new product. The competence and skills should be provided for the employees to perform the analysis. Internal auditors, compliance officers, technology officers, and legal counsel may be required during the analysis phase. Assessing the best method to protect the privacy, the personally identifiable should not be overlooked during this phase. While identifying and analyzing the risks associated with the third party it is important to maintain a long-term relationship between the management and the third parties.

The management should ensure that the third-party relationship is in accordance with the organizational policies as well as ready to respond any compliance deficiencies.

A final part of the initial risk assessment involves estimating the long-term financial impact of the proposed third-party relationship.