Third- Party Risk Management: Best Practices for Protecting Your Business.

Third- Party Risk Management: Best practices for protecting your business.

As any enterprise or business knows, third party suppliers and vendors form a large part of how successful a company can be in their industry. Forming those relationships and connections in your supply chain can improve profit and give you a competitive advantage. However, this increased reliance on third parties also increases financial, regulatory, and strategic risk. As well as any cyber security breaches or thefts of data and any risks the third party themselves may pose, the penalties for non-compliance can harm not just finances, but a business reputation. Mitigating third party risk and ensuring adherence to regulations can often be a complex process of governance and assessment for compliance or legal teams. As such, third party risk management is having to evolve. For businesses to successfully strengthen and evolve their TPRM, there needs to be a series of best practices to accurately assess, monitor and manage risk.

 

Risk Profiling & Due Diligence

To prepare for a successful third-party relationship, the compliance or procurement team in a business need to create risk profiles that rate risk for performance, quality, financials, data exposure, service, and security and the drivers behind them. This is the best practice to ensure any future arrangements do not fall foul of non-compliance, poor service, goods, or litigation. It is also important to note that due to current regulations, data protection and evaluation of the increased risk of the expansion of a business’s enterprise is of paramount importance and should not be overlooked during this stage of the process.

Businesses should always categorize third party risk profiles based on the level of risk and the type of relationship required. This allows for better management of the costs and time involved for research into higher-risk companies, which will be far more than third party options with a lower risk profile.

Due diligence can often be supported by using external data sources. These sources need to be relevant to specific elements of the industry a business is in. Different countries and contracting for specific products and services for example, will create different risks and therefore different risk profiles.  By using the correct data sources, a business can reduce the overall cost of the risk assessment stage.

Once a 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 the available information sources. 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 should help determine if or where in the chain, businesses are exposed by any relationship with a third-party and ensures that such a relationship is both best value and that it will not cause unnecessary risk and disruption to the running of a business.

Once a business has chosen the right third party to form a relationship with, it is imperative that any contracts are carefully written with consideration of any risks that have been identified during the risk profiling or assessment.

 

Monitoring and managing risk

Managing your third parties is an essential process within a TPRM system and an example of a best practice. Proper management of risk can prevent any gaps or delays in the extended enterprise of a business. Regular monitoring of the overall lifecycle of third-party contract and the risks identified during the assessment process can highlight any non-compliance with regulations that may have negative and costly consequences and help reduce the impact non-compliance has on the business. It is also important that any other 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.

Efficiently managing your third parties in your extended enterprise once the onboarding process has ended does not mean the diligence and research process stops. Regular auditing and reviews protect businesses and minimizes risk. KPI’s can play a large part of any contract management, but they are particularly pertinent when dealing with third parties. By negotiating and setting KPI’s in the initial stages, it can pay dividends during the monitoring phase of a contract lifecycle. Not only do they help protect both businesses and third parties from poor standards and performance, KPI’s can help identify any possible risks and ensures any decisions made are done with a basis in fact and data.

 

Digitalization

As pressure grows on large, enterprise level companies to keep up with regulatory compliance across global third-party networks and the increased regulation around the handling and transmission of what can sometimes be sensitive data, third-party 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, businesses can streamline their corporate governance into one easy to use system. By automating this process, there are a series of strong protections in place to help ensure businesses stay compliant with both internal policies and outside regulatory bodies across their third-party network by assessing, monitoring and mitigating risks that can have a detrimental effect on their relationships and business.

By optimizing your third-party risk management by using the tools and features included with TPRM software, you can continually monitor any KPI’s or renewal of contracts, allowing you to assess risk and project long-term revenue. The reporting and auditing features ensure a business is always alert to compliance and regulations regarding third parties, avoiding fines and litigation. If you already have a TPRM system in place, many software providers can integrate any features a business needs to improve into existing systems and risk framework and as part of a broader governance and risk strategies.

By implementing third party risk management software, and by embracing this digitalization, businesses can benefit from having the framework in place for scalability and to protect against future risks.

If a TPRM software solution could make a positive difference to your business, then please contact us here at Symfact today.