What Are the Best Practices for Third-Party Risk Management?
Businesses need third-party risk management; sometimes, it is essential for improved profitability or competitive advantages and often to decrease costs generated by requiring a more hands-on deck.
Third-party Risk Management comes with multiple risks, including reputational damage from non-compliance, security breaches, data thefts, and financial risks.
However, organizations may need a dependable third-party risk management plan to deal with unpredictable events in order to avoid financial and customer losses.
All these issues make for a compelling reason for companies to improve their Third-Party Risk Management programs.
What is Third–Party Risk Management?
Third-party risk management manages the risks introduced into organizations by vendors, suppliers, contractors, business partners, alliances, agents, and other external stakeholders who provide products or services.
What are the Best Practices for dealing with Third–Party Risk Management?
1. Know Your Third-Party
Before you can figure out the risk, you need to know who all your third-parties are and understand exactly how much information is shared. Once you know who your vendors are and how far they go within your organization, you must understand what data and networks they can access. Do they need the level of privilege they have? If not, you’ll need to set some limits.
2. Prioritize Vendors
Not all vendors are equal, or at least they don’t all pose the same risk to your assets. Vendors handling critical business processes will be a much more significant threat to your data than contractors working with one department.
You’ll want to see which third-parties stand for the most significant risks to your organization. Risk ratings are a tool that can help you do this.
Then, based on the results, prioritize your vendors by assigning a risk rating of high, medium, or low.
The vendors who handle the most business-critical operations or the most sensitive data will likely be rated medium or high.
Be aware that this method sometimes will give you only some of the information you need because sometimes you need to know the vendors’ likelihood of experiencing a breach. It’s essential to realize some assets may be insecure or may have been breached.
3. Monitor Vendors
Using tools to monitor policies and compliance, users can avoid issues by receiving notifications of non-compliance and scanning for problems the vendors may be unaware of.
4. Automate Processes
For reducing third-party risk, due diligence can be both tedious and labor-intensive.
Automated tools reduce paperwork by quickly checking on third-parties without creating surveys or updating spreadsheets manually.
It’s worth mentioning that vendors often have survey fatigue — they have to fill out many security questions for their clients and may simply be copying and pasting answers to save time. Automated tools can cut down on administrative work on their end as well.
5.Collect Consistent Data
Distinct kinds of data will take a lot of work to store or understand because, in many cases, you won’t be comparing apples to apples. Nor can a tool automatically process all those diverse kinds of data — instead, someone will have to review them manually.
An intelligence security tool can collect the data, only automatically collecting the structured information you need to assess risk. It will also save people on both sides of the client/vendor relationship time and effort.
Why is Third-Party Risk Management Important?
Overall, most modern businesses rely on third-parties to keep operations running. So, when your third-parties, vendors, or suppliers can’t deliver, there can be devastating and long-lasting impacts.
For example, you may rely on a service provider such as Amazon Web Services (AWS) to host a website or cloud application. Should AWS go offline, your website or application also goes offline.
An additional example could be the reliance on a third-party to ship goods. Suppose the shipping company’s drivers go on strike. In that case, that can delay expected delivery times and lead to customer cancellations and distrust, negatively affecting your organization’s bottom line and reputation.
Therefore, Third-Party Risk Management is necessary to prevent these outages and lapses, avoiding damage to your business’ reputation.
Outsourcing is a necessary part of running a modern business. It saves a business money and is a simple way to take advantage of the in-house expertise that an organization might need.
The downside is that relying on third-parties can leave your business vulnerable if a Third-Party Risk Management program is not in place.
Fortunately, technology has a solution to keep third-parties always compliant. SmartCompliance is cloud-native software that allows insurers to keep compliance rates in sight and improve them when necessary. Learn more!
