According to a 2022 Gartner survey, 84 percent of executive risk committee members say that “misses” in third-party risk resulted in disruption to their business operations. That statistic is alarming, considering that most enterprise organizations have extensive third-party relationships with vendors, suppliers, and partners for business innovation or operational efficiency.
Moreover, most companies engage with third parties to handle a significant number of administrative activities, such as payroll. Such engagements often deal with sensitive organizational and customer data – and if those relationships unfold without proper governance in place, they could introduce your organization to significant risk, known as third-party risk.
So how do most companies manage third-party risk? Usually they put a third-party risk management program into place; this provides the proper funding, visibility, and resources to conduct a third-party risk assessment and then to respond to any threats from the risks you find.
As companies scale rapidly to serve their clients, their need to use more third-party vendors increases, to the point that it becomes untenable for companies without a coherent vendor risk management function.
This is where a robust third-party risk management software platform can help.
What Is Third-Party Management Software?
In simple terms, third-party management software is a set of tools that can manage the end-to-end lifecycle of vetting, selecting, onboarding, and managing third-party vendors for a company. These tools would typically contain a comprehensive management solution, and that can help you manage different types of vendors depending on their function (supply chain, technical support, payroll, and so forth).
Because onboarding and entrusting a large number of third-party vendors with organizational data is fraught with risk, companies also deploy dedicated risk management solutions to manage, automate, and mitigate the risk associated with third-party vendors.
What are Third-Party Risk Management Tools?
Third-party risk management (TPRM) tools and platforms enable your organization to vet and onboard the right set of vendors by running each one through a vendor risk assessment template using the following steps.
- Assess the reputation of third-party vendors and providers using stringent vendor risk assessment (VRA) questionnaires and market research data to arrive at a risk scoring mechanism. This helps an organization select the right vendor based on their needs.
- Monitor the performance and diligence of third-party vendors on an ongoing basis, based on their IT and business framework, for any real-time indicators that might put the organization at reputational, legal, or financial risk.
- Use a consistent approach to vendor onboarding and off-boarding workflows. This lets an organization set clear expectations and streamline its operations, bringing transparency and accountability in the third-party relationship.
Five Reasons Why it’s Important to Use Third-Party Risk Management Software
There are many advantages for companies considering investing in a third-party risk management software platform. The top five reasons to do so are below.
Plan for business continuity
As highlighted in the Gartner survey mentioned above, many companies do not spend adequate time and resources to assure business continuity within their third-party relationships. If a critical supplier suddenly becomes unavailable, that could cause severe disruption across the organization.
For example, if a third-party IT vendor suffers a significant disruption in its technology or people functions, that could also bring down the organization that engaged the vendor. TPRM software could monitor such scenarios and surface them with early warning signals for the executive leadership to take immediate action.
Reduce dependency on critical functions
Suppose your organization depends on third-party vendors for critical functions such as payroll or IT support. In that case, your TPRM software platform can flag such scenarios for your team to diversify the mix of third-party service providers to reduce the dependency on a single point of failure.
Furthermore, with redundancy built into the organization, even if a single vendor fails to deliver to business commitments and service levels, you can mobilize other vendors to recover the lost time.
Monitor for upholding brand reputation
Third-party vendors might be engaged for a specific function with your organization. Still, their actions or methods of doing business might also significantly affect your organization’s brand. For example, just imagine the nightmare your company would suffer if your key supplier uses slave labor, or a critical tech vendor’s poor security leads to your customers’ data ending up on the dark web.
Using TPRM software to monitor incidents in each of your third-party vendor relationships can help your communications team be aware of unsavory business incidents that might have occurred at your third-party vendor premises and prepare appropriate remediation measures.
Supporting shareholder reporting and responsibilities
As a public-facing company, your leadership is also expected to align with ESG and regulatory standards (think GDPR or CCPA), including occupational health and safety protocols.
Your TPRM software platform can monitor your third-party vendor relationships for any signals of them failing to align with such commitments. It can also provide your procurement team with the proper guidance to review and off-board non-performing vendors if necessary.
Mitigating IT and cyber risk exposure
Any third-party vendor commitment can involve significant access to your organizational data. TPRM software can help you monitor the preparedness of your vendor relationships to identify cyber threats striking through your supply chain, and then to take necessary actions to defend your technology stack against such scenarios.
Best Practices for Third-Party Risk Management
Managing a large pool of third-party vendors for your company might seem overwhelming. Several best practices can help you wrestle that challenge down into a manageable, sustainable, successful program.
- Deploy a comprehensive risk intelligence team to monitor all third-party vendor engagements continually.
- Gain leadership support from your company to invest in the due diligence and KYC/AML regulations for your third-party vendors.
- Perform regular audits of your third-party vendors to evaluate their readiness to uphold security, health, and governance standards.
- Invest judiciously in your organization’s IT infrastructure and security stack to shield yourself against external attacks.
For your reference, here is an article with a complete list of best practices for managing operational risk for third-party vendors.
Manage Your Vendors With Ease With ROAR
Maintaining and scaling a business without engaging third-party business providers is impossible today. You can, however, safely manage the risk of engaging with many third-party providers by using the right TPRM software platform.
The RiskOptics ROAR Platform is a comprehensive solution that caan bring all your third-party relationships under one roof so you can more easily manage and mitigate third-party risks.
If you would like to know more, schedule a demo today to learn how ROAR could help your company prepare to engage with your third-party providers the right way.