Third-Party Risk Management (TPRM) is the process of identifying, assessing and controlling risks presented throughout the lifecycle of your relationships with third-parties. This oftentimes starts during procurement and extends all the way through the end of the offboarding process.
Challenges
Organizations rely heavily on their third parties for improved profitability, faster time to market, competitive advantage, and decreased costs.
However, third-party relationships come with multiple risks that include:
Strategic Risk
Risk arising from adverse business decisions, or the failure to implement appropriate business decisions in a manner that is consistent with stated strategic goals.
Reputation Risk
Risk arising from negative public opinion. Third-party relationships that result in dissatisfied customers, interactions not consistent with policies, inappropriate recommendations, security breaches resulting in the disclosure of customer information and violations of laws and regulations.
Operational Risk
Risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
Transaction Risk
Risk arising from problems with service or product delivery.
Compliance Risk
Risk arising from violations of laws, rules, or regulations, or from intentional or inadvertent non-compliance with internal policies or procedures or with company business standards. This risk exists when the products or activities of a third party are not consistent with governing laws, rules, regulations, policies or ethical standards.
Information Security Risk
Risk arising from unauthorized access, use, disclosure, disruption, modification, inspection, recording or destruction of information. It is a general term that can be used regardless of the form the data may take.
Due diligence is required to determine the overall suitability of a third-party for a given task. Ongoing review, monitoring and interaction management over the entire vendor lifecycle can take a lot of time and resources.
In response to increased regulations, the market for TPRM solutions continues to evolve and bring new capabilities to help you protect your business while focusing on your core activities. The ultimate goal is to reduce the likelihood of security incidents, data breaches, and operational failures and to meet regulatory requirements.
How can this technology help you?
TPRM solutions will provide you with capabilities to automate and support the identification, assessment, analysis, remediation and monitoring of the information and operational risks arising from your organization’s use of third parties, as well as reporting to your stakeholders.
An effective third-party risk management function provides at least:
Central visibility into all third-party relationships and contracts
A formal, pre-contract risk assessment and due diligence process
Use of standardized, risk-mitigating contractual terms and provisions
Risk-based monitoring and oversight
Formal offboarding at the end of the relationship
Tools employed to manage and mitigate the risks induced by third-parties include:
Questionnaire Assessment Automation
automate the assessment process by using pre-built questionnaire tools.
Cybersecurity Risk Rating
automate the collection and analysis of externally available third-party risk data to help users assess more accurately their partners’ relative cyber-hygiene and risk exposure.
Advantages
Regulators have stepped up their standards regarding how companies protect themselves against third party issues, so this area is becoming a more important part of your risk management plan.
The following represent advantages of managing such risks:
You will be able to:
Get to know your third parties’ risk exposure and track risks in real-time
Improve visibility into your third-party relationships using a centralized repository of vendors, assessments, risks and mitigation actions
Identify critical vendors and easily assess their risk profiles
Benchmark your vendors against others in the same industry
Manage risks and assign mitigation activities both internally and externally, and track the progress of remediation actions with each of your third-parties
As well as: