As the digital world expands in combination with globalization, there has been a dramatic increase in the number of third-party vendors associated with businesses, from supply chains to partners. To balance the risks and overheads that third parties bring to the equation, you need to have a successful risk management framework in place. But what does successful risk management entail?
Creating your risk profiles
Any third-party risk management process should begin initially with identifying different risks and the specific drivers behind them. This may be process risks, events that would have negative consequences for your business, data breaches or non-compliance with regulations. You can then start creating risk profiles. Risk profiles are essential in the initial stages of assessing and onboarding your third-party vendor. Specificity is your friend; your risk profiles need to be relevant to elements of your business and the situation. Different countries and contracting for specific products and services for example, will create different risks and therefore different risk profiles.
This is because not all third parties are equal and deciding what is important to your risk profile is entirely inherent on your business or organisation. There is only a small level of risk when the third-party is local or will not be part of your supply chain, compared to dealing with larger global businesses and vendors, or if your business is dealing with sensitive commodities, products and data and information. Always categorize a third party based on the level of risk and the relationship you will have with them. This allows for better management of the costs and time involved for research into higher-risk companies, which will be far more than your vendors with lower risk profiles.
Conducting due diligence
Once you have your risk profiles, you can ascertain which third-party vendors are important to spend time on and need further review. You may also have to request and manage any extra information from the third party that you think may be pertinent when researching and comparing against any data sources for risk. This could include information such as banking relationships, stakeholders in the business, executive names, and operating locations. Collecting the required information can come from individuals in the business or data from systems like your CRM or ERP. Wherever the source of your data you still need a reliable process to request and control the collection and use of profiling information about the third party.
Data sources are a huge part of managing risk and a lot of third-party risk management software systems have links leading to external databases such as those from Dow Jones and Thomson Reuters, giving you access to advanced security profiling of both businesses and individuals and comprehensive background checks. But even without software, it is important to consider what databases and sources are relevant to your business. As some data sources are subscription-based, you must make clever choices, whether that be a specific location, or source(s) that are specific to your business operations, using the correct information sources is important to reduce the overhead costs involved in the risk assessments.
Once your business has the required information to make an informed risk assessment, there should be an analysis process or framework in place to compare the data against available information sources. This should help determine if or where in the chain, you are exposed by having a relationship with the third party and ensures you have fact-based decision making as the driving force.
Monitoring and managing risk
Managing your third parties can be time-consuming, but it is essential you have this process in place, either manually or by implementing management and monitoring software. Proper management of risk can prevent any gaps or delays in your vendor ecosystem or non-compliance with regulations that may have negative and costly consequences. Efficiently managing your vendors once the onboarding process has ended does not mean the diligence and research process stops. It is important that any risks, or risk areas are continually identified so that steps can be taken quickly to avoid any damage to your business or your business reputation.
The third-party monitoring process can also provide the relevant data with regards to auditing. It is important to continually audit your third parties, for both the success of your business and to reduce the risk of litigation and fines which can have devastating financial consequences. Regular auditing and reviews protect the company and minimizes risk. Although if you are doing this process manually, the time involved to continually monitor each individual vendor can be costly in terms of both finance and productivity.
With the use of technology on the rise, fraud is becoming a more commonplace crime and cyber security is a necessity. Regardless of the size of your company and even if your business operations do not deal with financial data for example, you should never assume you would not be targeted and so data protection and evaluation of the risk the expansion of technology involved in your business is of paramount importance.
Implement risk-management software
For smaller businesses who may manually manage all their vendor contracts, this may mean creating a risk profile compiled from manually searching compliance databases for the relevant information when auditing or onboarding potential vendors, as referenced earlier in the article. But if you are a larger enterprise with a growing number of contracts and third-party vendors, this method not only involves too much time and money, but there is risk of oversight and human error due to the complex process of mitigation and adherence to regulations that compliance teams are bound to. To be successful in your management of third parties, there needs to be a framework in place for assessing and monitoring risk. With the advancement of technology and as pressure grows on large, enterprise level companies to keep up with regulatory compliance and the handling and transmission of what can sometimes be sensitive data, risk management software is an excellent solution. Rather than spending a lot of time and resources on inefficient ways of dealing with the processes associated with management and third-party information, you can streamline all the steps we have detailed above into one simple, automated system.
Third-party risk software can also offer extra features to help your business mitigate and manage risk such as: -
- Some third-party management software providers offer a bespoke configuration layer within their software. This helps increase accuracy in risk models and processes, as your risk management framework can be configured to match both perfectly, giving you a level of consistency vital to the success of risk governance and management.
- As businesses expand and relationships change and grow between your business and third-party suppliers and vendors, risks also change and need to be managed. This means there must be a certain level of configuration ability within your software. Some providers have an access control interface, allowing you to have complete control over what changes can be made, and who has access, which improves security and makes you less vulnerable to outside influences and attacks.
- As an added feature you can have incident capture and reporting suites. This ensures all incidents are stored and automatically assigned for investigation, whilst analysis tools can assist with legal protection for you during the lifetime of a third-party relationship. This helps you manage issues quickly and with the least amount of disruption to the running of the business.
- Identity management is another feature sometimes offered, which helps with understanding your customers, employees, and vendors, making your business more secure and profitable. This also assists with monitoring and investigations. It can identify, authenticate, and investigate individuals and companies, reducing the risk they may pose to your business.
- When launching new business relationships, the third-party risk management software from Symfact can design, build, and publish intelligent questionnaires to help identify any risks.
- Centralized secure administration of Third-Party profiles enables easy and transparent access across the enterprise.
- If you have a large amount of third parties with access, it is imperative that you can easily track changes and views. Everything needs to be accountable. Every action made in a risk management software system is fully tracked in the audit logs, along with a time stamp and the user’s information.
- If you are a larger business with a lot of third-party suppliers or vendors, then a self-reporting feature in the risk management software will be useful. It drastically reduces the time spent conducting reports on each third party and makes risk management far more efficient.
Mitigating third party risk and adherence to regulations can often be a complex process for compliance teams, third party risk management software is designed to make that process simpler and help protect your business by assessing, monitoring and mitigating risks that can have a detrimental effect on your relationships and business, as well as ensuring compliance with internal policies and outside regulations. If you think Risk management software could make a positive difference to your business or whether you think your business could benefit from using risk management software as part of your broader governance and risk strategies, then contact us here at Symfact.