How to Make Third Party Risk Management Painless
Third party risk management — also known as TPRM — has gained significant popularity in recent years as business leaders become increasingly comfortable with outsourcing various functions within their companies.
But not every experience with a third party service provider is going to go smoothly and there is an inherent risk associated with pulling new individuals behind the curtain that is your company. Fortunately, there are many strategies that can be employed to reduce the risk associated with contractors, vendors, and other third parties. An experienced third party risk management company will be well-positioned to evaluate and identify existing risks, in addition to strategizing methods for mitigating future risks. This makes the practice of outsourcing and hiring contractors virtually painless, thereby freeing company leaders to focus on running and growing their business.
What is third Party Risk Management Exactly?
Third party risk management involves the evaluation of contractors, vendors, service providers, and other third parties who engage with a company or organization.
In addition to evaluating and advising on the current risks that threaten a business, risk management consultants will also strategize and oversee the implementation of measures that will reduce risk in the future.
Understanding the Risks and How third Party Risk Management Experts Benefit Your Business
In the world of third party risk management, the actual risks in question can vary dramatically.
Reputation matters, especially in a world that’s ruled by the internet. A single individual gone rogue holds the ability to cause serious damage to a company’s reputation and ultimately, profit margin. For this reason, many companies turn to risk management specialists to identify third parties who may pose a risk to reputation. With a few smart policies and processes in place to screen vendors and contractors, a company can guard its reputation and its future.
Injury and illness can be very costly to a business. Not only could the company lose valued employees if a third party contractor or vendor acts in an irresponsible or unprofessional manner, but they also face financial expenses associated with higher insurance premiums, personal injury lawsuits, and worker’s compensation. A risk management expert can identify potential problem areas and implement processes and policies that minimize the risks of injury. In this sense, TPRM service providers quite literally make risk management painless for company stakeholders.
Lawsuits and court cases can draw out for years, resulting in tremendous costs and even more hassle. Beyond this, some business sectors — think banking, insurance, and health care — are highly regulated. Companies within these verticals are required to adhere to strict laws and rules, making compliance a critical element of a risk management strategy. This frees company leaders to focus on business matters instead of complex legal matters
Intellectual Property and Profitability Risk
Companies with profitable intellectual property, trade secrets, or proprietary formulas face a unique set of risks when hiring third party vendors or contractors. Just imagine how much damage could result if a cash-strapped vendor with a gambling problem got their hands on a secret formula; they could then sell that secret formula to a competitor, devastating your company’s profitability. This is an example of a scenario where a risk mitigation specialist might recommend measures such as background checks, non-disclosure agreements with “teeth,” and policies to help limit access to sensitive information. The right risk management consultant will ease concerns by helping your company to implement measures and policies that will keep sensitive information under wraps.
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Some industries face tremendous security risks, which can, in turn, pose threat to profitability, property, life, and limb. Company leaders need to know that they have implemented appropriate security measures and that their security personnel are up to the task of keeping everything and everyone safe. This fact has made security one of the most commonly-outsourced specialties. An experienced risk management expert can evaluate a company’s security contractors from an objective stance that will allow them to identify potentially-dangerous gaps and oversights.
All of the aforementioned risks have a financial impact, to be certain. But beyond this, you can find additional financial risks in other areas. For instance, individuals with a history of theft crimes can pose a great risk to a company’s financial wellness, especially if they’re allowed certain access. Even something such as illicit drug usage can represent a financial risk since a bad on-the-job decision could lead to injury, accident or damage. It’s this fact that prompts so many companies to impose drug testing requirements as part of their risk management strategy.
At the end of the day, financial risk is perhaps the most central focus of a third party risk management specialist because that’s what literally represents the bottom line for each and every business.
Third Party Risk Management as a Painless Solution to Mitigate Risks
Many business leaders view third party service providers and vendors as indispensable resources that are critical to success in today’s business world. Yet these “outsiders” can represent a major and very unique risk to a company’s financials, operations, reputation, and future.
Even large corporations may lack risk mitigation specialists with the expertise and insights required to evaluate third party risk. For smaller companies and mid-sized enterprises, the permanent hire of a risk management specialist may not be practical or financially feasible. For these cases — rather ironically — it can make sense to pull in a risk management consulting firm to evaluate the existing conditions and offer software solutions for reducing risk today and in the future.
A risk management consulting firm also brings unique insights and fresh viewpoints that may escape on-staff risk mitigation experts. For this reason, even companies with a risk management team on staff can benefit from working with the contracted firm’s TPRM consultants.
At iTech, our third party risk management experts have a solid understanding of the numerous risks facing today’s companies, from small businesses to large enterprises. We are well-positioned to provide comprehensive risk management solutions, along with other services such as governance risk and compliance solutions. Contact us today to discuss how iTech can make third party risk management painless and straightforward for your business.