As the business world becomes more complex and dynamic organizations are increasingly relying on third parties to bolster their capabilities with providing essential goods and services. While third parties can optimize distribution and profits, third parties come with their own set of risks and dangers. With a growing reliance on third parties’ organizations must also refine their third-party risk management (TPRM) programs to ensure that they are robust and have 360-degree situational awareness of potential risks.
Third parties can increase an organization’s exposure to a number of risks that include: disrupted or failed operations, data security failures, compliance failures, and an inconsistent view of goals for the organization. With increased exposure due to cooperating with third parties, the necessity for an effective TPRM has grown in significance for organizations of all sizes. Not to mention there as been a surge of third-party risk and compliance regulation implemented by the Biden administration. It has grown so much that it has become a key function within an organization’s processes and policies. Despite growing regulation and an increase in confidence for risk programs across the board in third-party risks estimates have also concluded that more than 40% of organizations do not do enhanced due diligence on third-parties.
As the importance of TPRM becomes more apparent to organization’s risk management teams have begun going to great lengths to ensure that vendors to not become liabilities when they become a crucial part of business operations. However, this becomes even more tricky when third parties have third parties of themselves. This creates fourth, fifth, or even sixth-party risk management which can quickly become overwhelming for any risk management team. Oftentimes when organizations incorporate a third-party into their business operations, they are unknowingly also incorporating other organizations whether it be now or in the future. This can cause organizations to take on numerous forms of risk unknowingly especially in terms of cybersecurity.
Third parties that provide crucial services to an organization often have some form of integration within their network and if a third-party does not effectively manage or follow a cybersecurity program, any vulnerability within their cybersecurity framework can be exploited and used to access the original organization’s data. Again, this becomes a growing concern especially when a complex web of various vendors is created through third-party relationships that are all connected in some way throughout their network. Estimates have shown that there was as high as 81 data breaches due to third-party incidents throughout 2021 alone. It is not only cybersecurity that poses serious risk, but any disruption to any business across the web of third parties can cause a chain reaction and thus greatly hinder crucial business operations.
Leveraging Technology to Manage TPRM
What can organizations do to still maintain critical third-party relationships while ensuring that exposures are mitigated or eliminated? There are several things that organizations can do but one of the most important is ensuring that the third parties are property vetted for their own TPRM programs. Any potential vendor must demonstrate appropriate risk management processes and policies in addition to having complete transparency as to what other vendors may enter into the web, that way organizations can have a clearer picture as to who is part of their fourth or fifth-party relationships.
The process of vetting potential vendors can become time consuming, because of this it is important for risk management teams to develop a comprehensive system for reviewing contracts and repeated evaluations of vendors. By establishing an efficient system risk management teams will better be able to allocate resources where needed and better target and mitigate any potential third-party risks.
To make things even more complicated, third-party risk is unique in a sense that the risks that organizations could be exposed to through third-party relationships encapsulates numerous forms of risks ranging from cybersecurity, compliance, and operational risks. Because of this organizations require a coordinated effort across departments to allow for a better assessment of these various risks. The downside is that coordination on that level can be extremely difficult to effectively execute. It is because of this that many organizations are turning to GRC information and technology architectures to better automate the processes and enhance cooperation across the organization.
Due to the grand scope of risks associated with third parties, even attempting to manage them through manual processes is only asking for failure. To effectively manage these risks organizations, need agility and efficiency which often can only be achieved through the assistance of an effective information and technology architecture.
→ SEE ALSO: #RISK - ExCel, LONDON: 16th & 17th November 2022
#RISK will be the place that business leaders meet, learn, knowledge share and understand how the lines between cybersecurity, privacy, risk management, and compliance that were once straight and delineated are now blurred and merging.