What is Third Party Risk Management?
Third-party risk management (TPRM) is a type of risk management that deals with identifying and minimizing risks in relation to using third parties. TPRM can also be referred to as vendor risk management.
TPRM is designed to help organizations discover unexpected risks. This is done by giving organizations information on how third parties conduct operations and what ways an organization is using the third party.
Why is Third-Party Risk Management Important?
First off, it is exceedingly rare in the modern business world for an organization to have not fostered business relationships with third parties for which both parties conduct some sort of business exchange. This fact alone could suffice as evidence for why TPRM is important. You may know the risks associated with your company like the back of your hand and that is great. However, if you are not tracking the risks associated with the third-party vendors, partners, services providers, etc. You are leaving your organization vulnerable.
According to the Extended enterprise risk management global 2020 survey 84 percent of respondents said their organization had experienced a third-party incident in the last three years. This is a huge cause for concern considering many companies face specific regulatory guidelines regarding their vendor risk management process. Initial due diligence is no longer enough. Companies must perform regular and programmatic risk assessments of the vendors that support key business processes.
Types of Third-Party Risk Management Risks
There are many different types of risks associated with TPRM and we tend to only think about the ones that involve cybersecurity. Though, who can blame you when data breaches among other cyber-attacks seem to frequent the news. But, part of having a good TPRM strategy is knowing as much about all the possible risks that you can. Therefore, the risks mentioned below should be on every risk manager’s mind.
- Strategic Risk – These risks come from decisions that are made about an organization’s goals. Basically, strategic risks are the risks of not achieving these 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.
The Third-Party Risk Management Lifecycle
Step 1 Identify Your Vendors, Third Party Suppliers
The first step in the vendor management lifecycle is all about finding out exactly how many third parties you are working with and who they are. Primarily, you need to find out if this list of third parties is correct. Then, it is important that you break it down into who is onboarding and who is an existing vendor.
Step 2 Classify Third Party by Risk/Rank Level
Now, it’s time for you to begin the vendor classification process. When doing this it is important to pay close attention to things like critical vendors, PII Data, Annual Spend, and Critical Engagements.
Step 3 Assess Vendor Compliance to Your Requirements
Once you have classified your vendors you then need to perform an assessment based on the different tiers/classifications for said vendors.
Step 4 Mitigate, Monitor & Report
Address the risks associated with vendors and the delivery of their products and services. Monitor and measure the effectiveness of vendor risk mitigation and controls.
Using OpenPages for Third-Party Risk Management
OpenPages Third-Party Risk Management assists in efficiently managing third-party relationships and engagements to improve business performance. It helps reduce disruption and possible negative impacts on the organization’s compliance, brand, and/or operations stemming from a vendor’s inability to deliver.
OpenPages Third-Party Risk Management addresses third-party risks that could disrupt the delivery of products, services, or both or negatively affect overall business performance. Given the considerable number of vendors that organizations rely upon today, risk managers need to develop a network of strategic vendors that contribute significant business value and are difficult and expensive to replace. Putting in place a framework to periodically monitor and measure the effectiveness of vendor risk mitigation and controls will improve business performance and help minimize disruptions resulting from a vendor’s inability to deliver.
OpenPages Benefits for Third-Party Risk Management
IBM OpenPages Third-Party Risk Management helps you understand the risks and improve your business results with each of your vendors.
Third-Party & Engagement Management
Connects with enterprise and external systems to import information on vendors & engagements; combines and maps vendor data in a common repository; scales to accommodate thousands of vendors.
Third-Party Questionnaires and Surveys
Streamlines and standardizes the process of creating, distributing, and following up on vendor risk surveys and questionnaires; helps qualify vendors based on assessment scores.
Third-Party Risk Identification
Helps create a centralized, tightly mapped structure of the vendor risk hierarchy including risks, controls, KRIs, locations, and regulations; supports vendor categorization based on risk, criticality, and other factors.
Issue and Incident Management
Guides vendor risk issues through a systematic process of investigation and resolution; enhances collaboration with vendors on corrective action; provides real-time visibility into vendor issues.
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Third-Party Risk Assessments
Provides configurable methodologies to assess and score inherent and residual vendor risks; captures detailed vendor risk data, including risk severity, impact, consequences, mitigating plans, and issues.
Analysis and Reporting
Offers multiple reports, including vendor risk and performance scorecards and risk heat maps; enables real-time tracking of vendor risks with the ability to perform statistical and trend analyses.