As businesses and organizations build on the growing opportunities and benefits provided by an extensive third-party eco system, the larger and more complex risk management becomes. To successfully manage and monitor these third-party relationships and the value they bring to your business, there must be a solid framework in place for the increase in governance and management of risk presented by an external enterprise.
Risk assessment and profiles
To prepare for a successful relationship with a third party or extended enterprise, your compliance or procurement team need to be creating risk profiles that rate risk for legal compliance, financials, security, performance, and data exposure. The latter is especially important due to the increased regulations around data privacy. This assessment is a crucial step to ensure any future arrangements do not fall foul of non-compliance, poor service, goods, or litigation. All of which can have negative consequences for the success of your business, both financially and reputationally. You want to ensure that your business is not only going to be using the best value supplier, but any third-party under contract is not going to underperform, cause unnecessary risk and disruption to the running of your business.
Due diligence is a vital part of any risk assessment and many businesses are using external risk intelligence and data sources to assess the risk and resilience of third parties. As part of any TPRM, businesses can integrate software that has links leading to external databases such as those from LexisNexis, Dow Jones and Thomson Reuters, giving 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. Although this has been referred to in an earlier article on Successful third-party risk management, it is important to note that 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 third-party risk assessments.
Once your business has the required information to make an informed risk assessment, there should be a process in place to compare the data against all available information sources. An analysis of third-party resilience and an internal audit should also be completed to ensure a sufficient framework is in place to deal with the third-party contract and help determine if or where internally or in the external chain, you are exposed by having a relationship with the third party.
Continuous monitoring of risk
To deal with third parties responsibly, monitoring and risk assessments throughout the lifecycle of the contract and relationship are key components of TPRM. This is where many businesses struggled with the advent of the Covid-19 pandemic. Force majeure and exit clauses became headline news with many organisations not fully aware of the risk they posed to their eco-system. To not be caught out by deadlines, clauses and negotiation and withdrawal periods, businesses must efficiently and diligently monitor and manage third party relationships once the onboarding process has ended. 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.
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 third party ecosystem or non-compliance with regulations that may have negative and costly consequences.
As with all processes, your management framework needs to be able to adapt to changing circumstances, for example, the covid-19 pandemic caught many businesses off guard and highlighted where there were either gaps in their management system or in a lot of cases, where the management system proved inefficient to cope with the crisis. Rather than being able to configure the framework to the current risk, many businesses and organizations had to implement entirely new processes. This has contributed in the push towards digitization across global industries during the past year.
As businesses expand and relationships change and grow between your business and third parties, especially in relation to their value, risks also change and need to be managed. This means there must be a certain level of configuration ability within your TRPM.
One of the benefits from digitization is the ability to configure your management system. Some risk management software providers offer a bespoke configuration layer within their software, such as the risk management software provided by Symfact. 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.
There is a growing pressure on large, enterprise level companies to keep up with regulatory compliance and the handling and transmission of what can sometimes be sensitive data. This is proving a complex task due to the ever-changing regulatory environment.
Mitigating third party risk and adherence to regulations can often be a complex process for compliance teams, third party risk management 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.
One of the main regulatory changes in recent years has been the introduction of GDPR and its equivalences around the world.
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.
The extended enterprise risk management (EERM) Third-party risk management global survey 2020 from Deloitte, has identified key reasons businesses implement TPRM. Although understandably, given the impact of the Covid-19 pandemic, the business landscape has changed, but there still seems to be a move towards corporate responsibility with regards to social and environmental issues.
One of these is climate-aware contracting, an initiative to ensure all clauses in contracts are compliant with climate regulations. However, there are other processes businesses can adopt to improve their eco-credentials and reduce their carbon footprint.
With the advanced technology currently available, contracts are being moved online and most companies are becoming paperless. E-signature integration in the software makes it easy to collect and store signatures and reduces the amount of paperwork, helping the environment as well as adding an extra level of security.
By switching to a browser-based centralization of documents, businesses can keep contracts and information digitally stored, negating the need for a paper trail and reducing both usage and waste.
For years, many companies have advised on the best model and framework for Third-Party Risk Management (TPRM) but given the quickly expanding nature of technology in business, the natural solution to balance out the increased risk profile and overheads that third parties bring to the equation, is to implement third party risk management software. With the move towards digitization, automated management can streamline key elements and processes and provide the framework to simplify TPRM and protect businesses with fact-based decision making. The tools and features provided by third-party risk management software companies can include:
- 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 third parties, 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, 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.
- One of the most useful features of third-party risk software is the trigger notifications. You can set this up to send notifications for any specific event or milestone. This helps employees have complete control over contracts and projects and helps your business enormously when it comes to the end of a contract lifecycle and relationship with a third party, as unproductive contracts won’t be left to auto-renew and you can be on top of timelines regarding renegotiating contracts and terms.
A large part of the digitization of TRPM has been the introduction of cloud-based software. Due to the expansion of technology and the increased use of websites, file shares and collaboration software, many companies have all their documents and data stored across different sites, departments and even locations. This is inherently risky, not only for how easily accessed sensitive data may be, but also the increased risk of simple human error. By implementing a central cloud/browser-based repository, not only does it reduce the loss of any vital information through human error, but it can streamline the documentation process and provide easy access to data and easy management of documents, contracts, legal agreements, or associated data.
Businesses can build on the centralized aspect of the software by creating a library of standardized terms and clauses, which will not only help with compliance of your own policies, but your business can use this software to identify any contracts that may include unilateral termination provisions, or indemnification clauses for example. Even elaborate legal language could flag up a potential risk in the future.
Third party governance and 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.