In today’s globalised business landscape, organisations rely heavily on third-party relationships to improve their profitability, time-to-market, and competitive advantage. However, these relationships come with many risks, such as reputational damage, strategic risk, regulatory risk, financial risk, and information security risk.
To avoid penalties and protect their reputation, companies must prioritize the continual development of their Third-Party Management (TPM) programs due to potential non-compliance issues, supply chain disruptions, security breaches and data theft.
Supply chain disruptions have become a significant concern for organisations as third parties are spread worldwide. In addition, catastrophic events such as earthquakes, tsunamis, floods, or labour disputes can significantly affect the flow of goods and services, leading to monetary losses and customer losses to competitors.
To reduce the effect that outside sources have on company performance and reputation, businesses are broadening their approach to Third-Party Management beyond just surveys and assessments for potential risks and regulations.
Companies are now determined to take more comprehensive actions in order to guarantee that their third parties abide by regulations, protect confidential IT information, stay clear of unethical practices, create a safe and healthy work environment, enhance supply chain security, manage disruptions appropriately and sustain high quality performance levels.
This blog will explore how organisations can enhance their TPM programs to effectively manage third-party risks and ensure business continuity in today’s complex business environment.
What Are The Common Types Of Third-Party Risks?
Organisations should be aware of the common third-party risks associated with third-party relationships. These include:
- Regulatory Compliance Risk – failure to comply with relevant regulations or industry standards.
- Financial risk – third parties not meeting payment obligations or suffering financial losses.
- Reputational risk– third parties engaging in activities that damage an organisation’s reputation.
- Data security and privacy risk – third parties failing to protect data from unauthorised access or misuse.
- Strategic risk – third party activities undermining organisational objectives, such as losing key customers due to third-party failures.
By understanding these common types of third-party risks, organisations can take proactive steps to mitigate them through their third-party risk management program.
How To Enhance And Maintain A Proper Risk Management Program?
Organisations must manage third-party risks effectively to reduce operational disruption, financial losses, and reputational damage.
To do this, organisations must develop an effective third-party risk management program. Here are the steps to enhance and maintain a proper third-party risk management program:
Develop a Comprehensive Risk Management Strategy: Organisations should identify third party risks, review existing relationships and processes, assess vendor profiles, and measure existing performance levels through audits or assessments. This will help create an up-to-date baseline of current third-party risks.
Establish Policies & Procedures: Companies must establish policies and procedures that define the standards of acceptable behaviours for third parties. These should cover third parties’ roles and responsibilities, third-party selection processes, third-party due diligence, contractual agreements and oversight responsibilities.
Monitor & Assess Risk: Organisations should regularly monitor third-party performance using automated tools and manual assessments to identify weaknesses in vendor security policies or procedures that could lead to risks. Also, organisations must assess third-party relationships’ risk throughout the life cycle by evaluating vendor risk changes over time.
Implement Controls: After assessing third-party risk levels, organisations should implement controls such as insurance coverage requirements, security certifications, incident response plans and other contractual obligations that may reduce third-party risks.
Update Policies & Procedures: Organisations must review risk management policies and procedures regularly to manage third-party risks effectively. Any updates should be communicated to third parties, stakeholders, and other appropriate personnel within the organisation.
By following these steps, organisations can maintain a strong third-party risk management program that will help them identify, manage and mitigate third party risks. This can reduce operational disruption, financial losses, and organisational reputational damage.
Why Working With A Third Party Risk Management Company Might Benefit You
A third-party risk management company can help organisations identify, manage and mitigate third-party risks more effectively. This can be done by providing expertise in due diligence, selection processes, contractual agreements and oversight responsibilities. The third-party risk management company can also assist with monitoring third-party performance and benchmarking against industry standards.
The third-party risk management company will be able to leverage its experience working with a variety of organisations to customise solutions for each particular organisation based on the unique needs and goals of that organisation.
They can also provide ongoing support after implementation to ensure the program’s effectiveness. As a result, these services can ultimately save organisations time, money and resources while protecting their interests from third parties.
Third party risk management is an essential part of any organisation’s overall risk management strategy. By taking these proactive steps, organisations can protect their interests while building strong relationships with third parties for improved profitability, faster time to market and competitive advantage.