The supply chain is becoming increasingly complex, with more companies outsourcing to third-party vendors. While this can help businesses save money and increase efficiency, it also introduces a new set of risks that need to be managed.
Third-party risk management (TPRM) is the process of identifying, assessing, and mitigating risks associated with the use of third-party vendors. TPRM programs are designed to protect an organisation from potential financial losses, repetitional damage, and legal liabilities.
In this article I introduce you to the basics of TPRM and provide best practices for managing third-party risks, and share some actionable takeaways you can put into practice immediately to get started with addressing the key issues around TPRM.
Why is TPRM important?
Although outsourcing to third-party vendors can create potential problems, it can also bring cost savings, scalability, access to specialised skills, and other benefits.
Without proper TPRM, organisations may become vulnerable to financial losses, repetitional damage, and legal liabilities. The risks associated with third-party vendors can have long-term consequences and interfere with the realisation of an organisation’s objectives.
Effective TPRM is essential for ensuring that an organisation’s risk management procedures are comprehensive and up-to-date. It can help organisations identify, assess, and mitigate potential risks associated with third-party vendors, and ensure that potential risks are managed effectively.
TPRM helps organisations protect their operations from disruptions, maintain the trust of stakeholders, and create an environment of business continuity. It also helps organisations make intelligent decisions about their third-party vendors and ensure they are compliant with industry regulations and standards.
Establishing a TPRM Process
The TPRM process consists of five main steps. These are:
- Identify and Categorise – Identify the vendors that you have or plan to engage with and categorise them based on their risk profile.
- Assess and Monitor – Assess and monitor third-party vendors by using established risk criteria and procedures.
- Mitigate Risks – Develop strategies and processes to reduce the risk associated with engaging with the third-party vendors.
- Monitor Compliance – Monitor compliance with industry regulations and internal policies that the third-party vendors are required to adhere to.
- Track Vulnerabilities – Track any vulnerabilities or potential gaps in security, data privacy, and incident handling that may arise in your relationship with vendors.
TPRM also involves close collaboration with the business to ensure that the processes are carried out effectively and the risks are managed appropriately.
The TPRM process helps organisations make informed decisions on which third-party vendors to engage with and how to ensure long-term business continuity.
TPRM Tools and Techniques
TPRM is an ongoing process that involves implementing a range of tools and techniques. These tools and techniques help businesses manage and control the risks associated with engaging with third-party vendors.
Some of the tools and techniques used in TPRM include:
- Risk Assessment Tools – Risk assessment tools help organisations gain insight into potential risks associated with engaging with a vendor. These tools can analyse vast amounts of data to identify potential areas of concern and prioritise them based on severity.
- Security Audits –Security audits provide detailed insights into the security posture of a third-party vendor. They are designed to assess the levels of risk and compliance.
- Vendor Due Diligence – Vendor due diligence is carried out to verify claims made by the vendor about its business, processes, technologies, and services.
- Automation Tools – Automation tools can be used to automate key processes in the TPRM process such as monitoring, assessing, and tracking vendors.
There are also a range of specialised tools and techniques available to help organisations effectively manage their third-party vendor relationship.
A good understanding of these tools and techniques is essential for any organisation that is looking to establish and maintain effective TPRM programs.
Implementing TPRM in Your Organisation
Once you have identified the tools and techniques for TPRM that best fit your organisation, it is important to ensure that they are properly implemented in order to enable effective risk management.
Here are some steps you can take to effectively implement TPRM in your organisation:
- Create a clear policy for TPRM – Develop a clear policy that outlines the procedures to be followed when engaging with third-party vendors.
- Establish a Risk Assessment Framework – Establish a Risk Assessment Framework to identify, assess, and prioritise the risks associated with engaging with vendors.
- Set Up a Vendor Management Program – Set up a Vendor Management Program to build and maintain relationships with third-party vendors.
- Automate the Process – Automate the processes for monitoring, assessing, tracking, and addressing risks associated with engaging with third-party vendors.
- Regular Reviews – Conduct regular reviews to assess the effectiveness of the TPRM initiatives.
These steps can help you effectively implement TPRM in your organisation and ensure that you are able to effectively manage risks associated with engaging with third-party vendors.
Best Practices for TPRM
TPRM is now a part of most organisations’ risk management system, and organisations are now implementing best practices to ensure its effectiveness.
Here are some of the best practices that organisations should consider for TPRM:
- Collaborate with vendors to reduce risk – Organisations should work closely with their vendors to understand their risk assessment processes and to identify any risks associated with their operations. By collaborating with vendors, organisations can reduce the risk of loss due to third parties.
- Improve vendor security controls – Organisations should set up vendor security controls to identify any security risks that vendors may pose and ensure that the necessary levels of security are being implemented. Organisations should also review the security controls of its vendors periodically to ensure they remain up-to-date and effective.
- Monitor third-party systems – Organisations should establish monitoring systems for its third-party vendors in order to track any changes that may introduce risk.
- Perform regular assessments – Organisations should perform regular assessments on their third-party vendors to identify and mitigate any risks that may arise.
- Provide training to vendors – Organisations should provide adequate training to their vendors on security principles and best practices. This ensures that vendors are aware of the risks and able to mitigate them accordingly.
By following these best practices, organisations can ensure that their TPRM initiatives are effective and that they remain protected from risks associated with third-parties.
Summing up TPRM
Third-Party Risk Management (TPRM) is an important component of any business. It can help organisations reduce risk, protect data and comply with regulations. TPRM looks for and addresses risks coming from external vendors, suppliers, and partners.
Organisations should ensure that they have proper processes for vetting their vendors, performing risk assessments, monitoring for risks, and providing appropriate training to vendors.
By implementing the best practices mentioned above, organisations can ensure that their TPRM initiatives are effective and that they remain protected from risks associated with third-parties.
Follow me on Twitter for more articles like this.