What Is Third-Party Risk Management?
For most businesses, outsourcing operations helps decrease expenditure, accelerate production, and increase profits. It allows them to assign noncore functions to experienced vendors while they concentrate on core functions.
Yet, outsourcing presents numerous risks.
Third-party relationships could lead to risks such as data compromise, illegal use of information, reputational problems, operational problems, and others.
It’s why your organization needs third-party risk management to help identify, assess, and control these risks.
By performing third party risk assessments, you can mitigate risks presented throughout the lifecycle of third party vendor relationships. It allows you to manage and mitigate issues from the procurement to the offboarding process.
Why Should You Perform Third-Party Risk Management?
According to research, third party relationships result in incidents including cyber data breaches, compliance violations, vendor performance issues, and operational issues. These incidents then lead to loss of productivity, loss of reputation, and monetary damage.
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It’s, therefore, critical to have a robust and mature risk management program that encompasses every stage of the third-party relationship lifecycle. Focus on operational, financial, and reputational risks and how you can mitigate them.
Ensure the third-parties:
- Comply with regulations
- Protect confidential information
- Have no unethical practices
- Handle disruptions effectively
- Keep a safe and healthy working environment
- Have a strong supply chain security
- Have high-quality performance levels
An effective third-party risk management program should also include the evaluation and identification of fourth parties. These are the suppliers, vendors, and contractors your third-party vendor partners with. It’s key to know who they are and how your third-party partner manages them because risks can flow to the last supplier in the chain.
It’s the responsibility of your organization to manage third party risks. Doing this can help you protect your business from issues associated with reputation, profitability, regulation, and litigation.
I hope this helps!