What is Third Party Risk Management?

Today, most businesses rely on third parties in some way or another, whether they’re outsourcing debt collection or hiring a software team to assist with bugs and day-to-day challenges. That dependence also means that most companies do not have as secure a framework as one would hope. If you’re working with an external team for any of your operations, you owe it to yourself and your clients to invest in third-party risk management.

Third-party risk management is the process of monitoring and assessing the risks to your business of working with outside vendors. It presents the opportunity for brands to look into each of their partners and understand where they thrive and where they may introduce potential risks later on.

Why Is Third-Party Risk Management Important?

Even though their benefits usually far outweigh their potential liability, third-party vendors can pose a risk throughout every part of your sales cycle without proper management. You need a solid risk management framework that considers all perspectives and anticipates vulnerabilities.

One of the most crucial parts of third-party risk management is the initial assessment. You’ll get a comprehensive look at your vendor’s workflow as it pertains to your operations and all the tools and processes they use to manage your information. Poor operational management on their part can lead to major risks to your organization, putting you at increased risk for things like data breaches and financial losses.

Following the risk assessment, regular checks on your vendors ensure they continue to keep up with your requirements and industry standards, minimizing your risk and maintaining goodwill in your relationship. Explore some of the greatest benefits of implementing third-party risk management practices and find your personalized solution.

Regulation Compliance

Whatever industry you work in, it’s likely that your company holds valuable, private information about your clients, such as basic financial information or extensive medical and legal documentation. Your customers trust you with this information — partly due to the litany of regulations businesses like yours must uphold to collect this information.

When you bring in third-party vendors, they may be used to upholding their own regulations, but it’s up to you to ensure they’re following your rules and making your customers’ safety as much of a priority as you do. Evaluating your vendor’s regulatory compliance with organizations such as HIPAA should be an essential part of your risk management framework.

Reputation Maintenance

Working with vendors who fail to adhere to regulations is more than dangerous. One misstep on their part puts your company’s reputation on the line. Even if you decide to sever ties with the vendor, your customers and potential clients are likely to remember the error and may choose a competitor without such a track record.

From the moment you form a partnership with a third party, they should have a comprehensive overview of who you are, what you do and what you value most. Understanding your brand guidelines may help them determine the best approach for representing you and, when necessary, interacting with your customers.

Financial Security

Preparing for something that may never happen is far cheaper than dealing with an issue after it’s happened, especially when protecting your business and customers. You may have a state-of-the-art security system to protect your clients’ information, but your vendors may not, and that puts you at risk. Even a minor data breach on their end can result in significant costs on your end.

A vendor assessment is a risk management tool you need, as it shows you where your largest financial risks lie and what you can do about them before they become a liability. A breach affects your reputation, finances and future, and the costs to protect you and your vendors are minimal compared to what it may cost to rectify an error later on.

Digital Development

One of the main goals for any business in taking on a third-party partner is to find new ways to thrive and enhance their workflow. Third-party partnerships are so popular in the business world because, along with bringing in new professionals to optimize workflow, you get the added benefits of specialists who can double-check your work.

Third-party vendors are unique in that they generally specialize in one specific aspect of business, whether that is financial management, customer service, software development or something else. While you and your staff may juggle dozens of requests and objectives, the vendor’s role is highly specialized and streamlined. Once you tell them what you need from them, your vendor will develop new solutions in accordance with your guidelines and use digital techniques to transform and optimize said area of operation.

Innovation and Growth

Finally, know that third-party risk management is a tool designed to give your business an edge in everything you do. As we mentioned, taking on a third-party vendor is like bringing in an expert to handle the specific parts of your workflow they’re experienced in. Your vendors will handle everyday tasks you may not be as skilled in, leaving you free to dedicate more time and resources to new, exciting areas.

With more people dedicated to keeping your business moving, you have the space to innovate new products and services and market your brand so that it reaches new people. Each vendor you partner with is there to work for you, so let them while you oversee the parts of your business that require your expertise.

How to Implement a Risk Management Program

A vendor management process describes the manner in which you keep track of the following types of questions related to the third parties at your organization:

• Who are they?
• What services do they provide?
• What sensitive information do they have access to?
• Which internal policies apply to them?

Making sure that a vendor due diligence checklist is carried out is an essential part of your vendor management process. Along with staying informed about your third-party vendors, your process should also analyze and manage suppliers so that it optimizes the way your organization interacts and leverages its suppliers.

Your vendor management policy ties your organization’s unique set of risks to the way in which you manage your vendors. It is a best practice framework that identifies which vendors pose risk to your organization, and subsequently outlines the controls your company needs to put in place in order to mitigate those risks.

So what type of information should your vendor management policy contain? Start by defining the requirements of each of your vendors as it pertains to the following areas:

• Human resources
• Physical security
• Data security
• IT Maintenance
• Vendor management (how this vendor manages their vendors)
• Business continuity & disaster recovery
• Incident management
• Compliance

Establishing guidelines and requirements surrounding the areas listed above is a good starting point. However, the way in which you govern the implementation of those guidelines is most important.

Experience a Customized Vendor Management Solution

Vendor risk management has a lot of moving parts and is an important part of a wider GRC program. Without keeping track of your critical third-party relationships, your organization is hindered from successful performance.

When you choose LogicManager, you gain access to our comprehensive Vendor Management software. In addition, we’ll connect you with our advisory analysts, a team of experts committed to your company’s success.