Whether it be security related or simply operational, if there are no proper policies, communication, and due diligence between both the organization and its third parties, they are both left vulnerable to risks that could completely disrupt operations. At this point, it may seem desirable for many to shift operations to in-house, however, the necessity and effectiveness of utilizing third parties continue to remain and thus requires organizations to implement a robust third-party risk management policy with effective strategies and communication at its core.

What is Third-party risk management?

Third-party risk management (TPRM) is a form of risk management that focuses on identifying and reducing risks relating to the use of third parties (sometimes referred to as vendors, suppliers, partners, contractors or service providers).   The scope and requirements of a TPRM program are dependent on the organization and can vary widely depending on industry, regulatory guidance, and other factors. Still, many TPRM best practices are universal and applicable to every business or organization.

Why is Third-party risk management important?

Third-party risk is not a new concern, but in the last few years, there have been more breaches across industries and a greater reliance on outsourcing. Disruptions have impacted almost every business and its third parties—no matter the size, location, or industry. In addition to data breaches or cyber security incidents being common, there have also been outages affecting many companies’ capabilities. Some ways you can be impacted are:

• Internal outages and lapses in operational capabilities can cause substantial financial harm to companies.
• External Outages affecting the supply chain
• Vendor outage leading to supply chain vulnerabilities

What is a Third-party risk management framework?

Every third-party risk management(TPRM) framework will be different and cater to the organization’s needs, however, there are a few core elements to any TPRM strategy that organizations should seriously consider before entering into business with a third party. One of the first steps is to conduct a thorough risk assessment of the party in question. Identify where their risks lie, whether are they taking necessary steps to mitigate those risks, are their services a necessity, and in the event of a risk-related incident how well equipped are they to recover and how will it impact the organization as a whole. It is also pivotal when conducting risk assessments and evaluations of a potential third-party relationship to consider who they might be outsourcing with as well. While this will quickly turn into a complex web of relationships, it is critical to consider fourth or even fifth parties when establishing an effective TPRM strategy.

Once a contractor has been chosen and a third-party relationship established, the next step is to prioritize and maintain effective communication and monitoring. Quite often third parties are contracted to do business-critical operations and without effective communication a misinterpretation of goals and responsibilities could lead to detrimental setbacks. When the relationship is established, it is pivotal that the two organizations communicate goals and responsibilities as well as security practices. Third parties are often given business-critical information and if not taken care of correctly could leave the organization extremely vulnerable.

Oftentimes large organizations with hundreds of third-party relationships will face cyber security concerns due to third or fourth parties being hacked. Other concerns include environmental and social issues if an organization outsources work to a third party and that third party does not comply with specific environmental or social standards it could greatly impact the reputation of the outsourcing organization. With this in mind, it is critical that organizations communicate compliance and risk management standards and ensure that the third party’s policy management framework is effective and agile.

Many organizations turn to centralized policy management solutions to help protect the extended enterprise – a portal or other central authority to help with organization, implementation, and accessibility of third-party policies and procedures. While this is a positive and necessary step in any policy and third-party risk strategy, it does not make one immune to dysfunction.

Many departments may have their own system for organizing and utilizing policy, along with their own set of policy implementations and interpretations. As these silos develop, this can lead to a multitude of policies across the organization, with the added risk that those policies can conflict, or be invisible to senior leadership. Policy implementations in third-party risk management without proper due diligence or oversight, although well intentioned they may be, can lead to conflicts, and shifts responsibility off the organization and on to those enacting policy without the proper infrastructure.

Leveraging Third party risk management software to stay ahead

Once a third-party within your organization has comfortably transitioned into the day-to-day business operations it is now time to begin continuous monitoring. Just like any organization, third parties experience a constant shift of risks, goals, and responsibilities. Continuously monitoring third parties to ensure that their goals, objectives, and risk management practices continuously align with the outsourcing organization is critical to business continuity. While much of this may seem like a daunting and time-consuming task, organizations are not alone and have access to numerous information and technology architectures for assistance.

Third-party risk management and the development and implementation of policies surrounding third parties can often be difficult to design and an overwhelming undertaking to establish, fraught with confusion, endless revisions, and the potential to lose sight of the original intention. By leveraging technology to make the process a more collaborative and accessible experience, organizations can strive to create policy that protects the extended enterprise.

As a result, there has never been a greater need for policy and third-party risk management automation with an agile technology and information architecture than now. The back-end management and oversight of these challenges is crucial to the overall continuity of the organization, and an effective architecture and framework will engage employees and all relevant stakeholders to keep them connected and in tune with emerging risks – specifically as it regards to their roles and responsibilities within the organization.

GRC architectures like VComply can provide unification between risk assessments, vendor management, and continual risk monitoring to offer complete 360-degree situational awareness to an organization’s TPRM framework. Third parties have become a requirement for organizations to conduct business and thus an effective and agile TPRM framework.

It is essential for non-profit organizations to develop an integrated, agile, and collaborative issue reporting and case management program and framework that is found in VComply. VComply’s system and compliance architecture allow for issue reporting and case management to be integrated into other compliance, risk management and assessment activities coordinated across different departments and functions of the organization. This enables the organization to break down silos and make more informed business decisions.

See why VComply stands out as a G2 high performer in Compliance and Risk Management. Request your demo to see how it can drive your compliance initiatives.