Third Party Risk Management Best Practices
Organizations of all sizes and in all sectors can benefit from working with third-party service providers, vendors and contractors. The advantages are numerous, ranging from filling skill gaps and facilitating one-time projects to reducing overhead and achieving significant financial savings. But there are some risks associated with bringing these individuals into the fold. This is where third-party risk management best practices (TPRM) come into play.
Companies in some industries are more vulnerable than others. The financial sector is one example of a high-risk industry for obvious reasons. The healthcare and insurance industries also see a higher than average risk due to the vast volumes of personal information that are contained within their data stores. Just imagine what damage could result if that sensitive information was accessed and sold to identity thieves.
Third-party risk management should be a critical component of any organization’s overall risk management strategy, yet many don’t address TPRM directly until after an incident occurs. By that time, the horses have already escaped the barn and the damage is done. The following best practices will set you down the path toward establishing good third-party risk management protocols for your business — before a problem arises.
Third-Party Risk Management Best Practice #1: Identify the Risk
It is impossible to manage risk if you have not thoroughly identified that risk. It sounds simple, but many organizations skip this step and their TPRM strategy falters as a result.
The following measures will allow you to identify the risks.
Identify all of the third parties in your sphere – List out the contractors, vendors, service providers, consultants, temporary employees, and other third parties that work with your business. It’s easy to overlook a third party due to sheer number and the fact that you may not work with an individual directly. An easy workaround is to consult your financials to look for invoices from third parties that have worked with your business.
Identify the party’s role – What does the third party do? How long have they worked with your company? What areas or systems can they access? What permissions do they have? Do they have access to especially sensitive regions, such as financial information or a database with personal information?
Adjust access levels – An important third-party risk management best practice is to adjust permissions so an individual has the absolute minimal amount of access required to perform their job.
Third-Party Risk Management Best Practice #2: Develop a TPRM Strategy
Third-party risk management needs to be intentional and deliberate. This requires a well-thought out strategy. Many organizations turn to a TPRM consultant with the experience and insights to guide this process. This is a prudent course of action since a flawed strategy will result in flawed risk mitigation.
Representatives from all departments and divisions should be involved in the process of creating a third-party risk management strategy. You need insight from all regions of an organization to gain an accurate understanding of the vulnerabilities that exist.
Third-Party Risk Management Best Practice #3: Automate Your Processes
Automation plays two key roles in a third-party risk management strategy. Automating the evaluation of third parties holds the potential to reduce risk and save time. Meanwhile, automating business processes reduces human involvement and therefore, reduces risk.
Third-party risk management software can be used to largely automate the process of evaluating and even monitoring third parties. Most TPRM software uses artificial intelligence and machine learning technology to evaluate questionnaires that are completed by contractors, vendors and other third parties that work with your business. These systems are not foolproof, but they can offer useful insights by performing comprehensive sentiment analysis and identifying trends and warning signs that a human evaluator may miss.
Third-party risk management software may also include integrations with background check platforms. These background checks include data on an individual’s criminal history, credit score, bankruptcies, liens and financial issues, in addition to other public record data such as property ownership and divorces.
The advantage of using TPRM software is that many platforms are engineered to have algorithms that gain accuracy over time as additional data is collected and analyzed.
Automating processes within your organization is the second prong of a TPRM automation strategy. Humans represent a risk to security and integrity, whether they are a third-party contractor or a longtime permanent employee. By removing humans from the equation, or minimizing their involvement in these processes, you reduce the risk of data theft, human error and security breaches.
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Third-Party Risk Management Best Practice #4: Continuously Monitor Third Parties
Many organizations focus on the initial background checks and reference checks for third parties such as contractors and vendors. But they may fail to perform continued checks in the future, leaving the door open to significant risks.
For example, a third-party vendor may come under new ownership and company leaders reduce security levels across the system as a cost-cutting measure. Unfortunately, this leaves clients’ data vulnerable to a security breach. It is estimated that over half of all security breaches involve a third-party vendor.
This is an example of how a change in circumstances can lead to a change in risk level. Continuous monitoring allows an organization to identify these changes and take action.
Many third-party risk management software platforms offer continuous monitoring services. An individual is added to the system and the system automatically performs periodic checks of criminal records, public records and other important databases. If a significant change is detected, an alert is triggered so the company can perform a more in-depth investigation into the matter.
Third-party risk management is a complex yet essential component of any risk mitigation strategy. At iTech, we have an in-depth understanding of today’s most pressing TPRM-related challenges, especially when it comes to an organization’s technology. Contact the team at iTech today to discuss our approach to third-party risk management and how your organization can mitigate risk.