Most organizations in today’s world can’t operate without outsourcing to third-party vendors. Simply put, it has become necessary for them to remain competitive and profitable. These third-party vendors provide services such as app and software development, customer service support, payroll processing, and data storage. For this reason, it is important for companies to implement risk management for third-party vendors to minimize any associated risk and its potential impact.
The Most Common Risks Associated with Third-Party Vendors
Increased risk comes from three main sources, which include:
- Suppliers – Disruption from suppliers, such as information security and privacy issues, is a problem that has grown in recent years.
- Regulators – Regulations continue to change rapidly to ensure that companies are adequately managing risk related to suppliers.
- Economic conditions – With the economic conditions deteriorating rapidly within the last few years, suppliers are operating within tighter margins and at an increased risk of disruption.
These third-party vendor risks can negatively impact a company’s financial well-being and reputation. They can also affect an organization’s ability to maintain regulatory compliance and can disrupt its operations. Not only this but many of these overlaps. For example, a data breach can be both an operational and regulatory issue.
Third-Party Risk Management Best Practices
It is vital that you implement third-party risk management best practices to help minimize any risks imposed by your vendors and respond when there is a disruptive event that affects any part of your organization. Here are the top best practices to help ensure you have the best possible risk management for existing third-party vendors:
- Take inventory – Start with making a list of all your existing third-party vendors and prioritize the ones that are the most critical to your operations.
- Assess the risks – Focus on the highest-risk vendors first, performing an in-depth assessment of the risks they pose.
- Group vendors according to risk – Separate the vendors into groups based on whether they are high, medium, or low risk. Keep in mind that you need to be aware of the amount of risk your organization is comfortable with when making this assessment.
- Develop a risk assessment system – Develop and put into place a risk assessment system that can help you evaluate vendors in real-time. This includes things like tracking data security and conducting independent reviews.
- Assign the role of risk management – Select someone who can take on the role of managing third-party vendor risk and overseeing all established risk management practices.
- Establish lines of defense – Implement leadership, vendor management, and internal audit functions that will operate in tandem to minimize risk.
- Develop and implement recovery plans – Have plans in place for what to do when a third-party risk results in a disruptive event so you can ensure that business operations continue or there are issues with the quality of third-party service.
When it comes to new third-party vendors, it is recommended that you:
- Assess each new vendor to determine how well they can meet your needs and what their baseline level of security is.
- Onboard vendors to a central repository.
- Determine the level of inherent risk posed by a new vendor.
- Conduct a risk assessment of each new vendor.
- Implement external risk monitoring of third-party intelligence.
- Implement service level agreements (SLAs) and performance management criteria and monitor and assess the ability of the vendor to deliver on their SLA.
- Offboard vendors safely by doing things such as conducting contract reviews, removing access to systems, and removing access to physical premises.
Reliance on third parties is a reality that must be taken into consideration in the development of any risk management plans and procedures. While the goal is to have a seamless relationship with your vendors, you must be prepared for the risks that come with working with a third party.
Contact Platinum Technologies today to find out how we can help you implement the most effective risk management for third-party vendors.