Third Party Risk Management

Defining third party risk management 

No business is immune to risk, and third party risk assessment is one way to prevent costly and damaging incidents. But what does that term actually mean? In this post, we'll provide a definition of third party risk assessment and explain why it's important for businesses of all sizes. We'll also define some key terms related to the process so you can understand it better. By the end of this post, you'll have a clear understanding of what third party risk assessment is and why it's an essential part of any security strategy.

With a Third Party Risk Management (TPRM) program, you can identify and reduce risks in any third party relationships for your business.

TPRM is sometimes referred to as: ‘vendor risk management’, ‘supply chain risk management’ or ‘supplier risk management’. It is a subset of risk management.

Third party risk management services can help companies better understand:

• Which third party vendors they use?
• How to predict stability risks for critical customers, business partners and vendors?
• How they use them and the nature of potential risk?
• Whether they have sufficient practices in place to identify and reduce risk? 

 

What does third party risk management software collect?  

Third-Party Vendor risk management programs vary in size, depending on the needs of the organization and its industry and the associated regulatory requirements. However, there are best practices to adhere to and certain types of information that every business must collect. Generally, third party risk management tool considers the following data as vital:

• Personal and essential information e.g. vendor name, business purpose
• Context of the third party’s involvement, and level of engagement
• Any security reviews or certifications
• Vendor contracts 

 

A third-party supplier/vendor risk management tool (TPRM) will gather information that may impact the risks associated with third party vendors. This can include events such as:

• Mergers and acquisitions
• Internal changes to the business e.g., employee reduction, processes
• Negative press coverage across print, broadcast, and web
• Major events that pose a risk to your business e.g., natural disasters, COVID-19
• Product releases
• Regulatory changes and industry shifts
• Updates to sanction and PEP lists in many jurisdictions
• Company liquidations 

Benefits of third party risk management software  

As more and more businesses outsource projects, third party risk management has also grown in importance. The modern business must rely on third parties to some degree; disruptions to the supply chain can have lasting effects, which is why it’s important to have a TPRM program in place.

Third party risk management software can help you keep track of all your vendors and contractors, ensuring they meet security and environmental requirements in a cost-effective manner. By automating the process of vendor onboarding, you can add new vendors to your system with greater ease and speed.

 

Monitor third party vendors 

Gain a better understanding of your suppliers, vendors, customers, and business partners; monitor your third party network through all stages of the vendor lifecycle.

 

Customized third party risk management 

Nip emerging trends in the bud, and flag potential issues before they grow. In one customizable dashboard, your business can embark on the due diligence process with the click of a button.

 

Maximize profits, minimize risks  

By consolidating vendor information, you’ll collect relevant data with greater efficiency. A market-leading risk management tool will integrate with existing CRM and SCM systems.

 

Take a proactive approach to risk management  

To flag and address third party risks before they worsen, it’s a good idea to take a proactive approach to supplier risk management. What are some best practices for relationships with a third party vendor, and how can communication mitigate any potential issues that arise?

 

Prioritize vendor risk 

Naturally, some vendors have more of an impact on your business than others. As such, you can prioritize your vendors into tiers based on their level of risk and criticality. Some tools will automatically classify new vendors based on their context of involvement. To help you categorize these, consider whether:

• It would have a negative impact on your ability to provide services, if the third party vendor provides critical services.
• The vendor has access to sensitive or personal data that could be disclosed, modified, or destroyed.
• The vendor has a contract of significant value. 

Third party vendor risk can be classed into one of three groups:

• Tier 1 - high risk, high criticality
• Tier 2 - medium risk, medium criticality
• Tier 3 - low risk, low criticality 

Tier 1 vendors will require the highest level of due diligence, as well as being subject to an in-depth risk assessment.

 

Expand your vendor risk assessment 

While cybersecurity risks are well-recognized in supply chain risk management, there are other types of risks to consider—for any business looking to complete a comprehensive risk assessment.

 

Automate monitoring processes  

When you automate the repeatable aspects of risk monitoring, the entire process becomes more time and cost efficient. Below are a few ways you can introduce automation—which reduce time and effort, leading to compound savings in the long run. Some of these include:

• Onboarding vendors: With an intake form or integration with your existing systems, you can smoothly introduce vendors to your business.
• Assigning risk mitigation tasks: When a risk is identified, automatically direct the report to the relevant person in your organization—complete with a list of action items.
• Trigger performance reviews & reassessments: Every year, put vendors through a review: if they fail this review, you can automatically commence the offboarding process. Reassessment features will be triggered by contract expiration dates. 

 

Common risk factors for business  

There are several ways you could be impacted by third party risk. These can range from outages either internally or externally, having the potential to affect operations throughout the supply chain. In short, third party risk can impact your business where it’s most vulnerable. With a third party risk management program, you’ll also eliminate risk to your data collection, storage, and security.

 

Reputational risk management 

It’s important to stay transparent on ethical practices. Effectively manage media mentions on issues including forced labor, corruption, terrorist financing and environmental impact. A vendor risk management tool will minimize damage to your brand and corporate image, in a cost-effective way.

 

Compliance risks 

Stay protected from corporate compliance and sanctions risk. Regulations change quickly; it’s vital to continually update internal procedures and controls in accordance with this. When you use a tool to manage third party risks, you’ll gain in-the-moment insights.

 

Financial risk management  

Manage third party risk associated with fines, settlements, and remediation measures: which limit future business opportunities. Monitor the vendor’s inherent risk daily and protect the financial health of your business.

 

Strategic risk management  

Third party risk management is most effective when done strategically. Build a TPRM program that is robust, with inbuilt ESG and CSR compliance features. Identify profitable and exciting opportunities in the supply chain and grow to reach new markets.

How can LexisNexis help with third party risk management checks?

Nexis Diligence+™ combines all the most valuable intelligence and checks you need in a single solution, allowing you to conduct consistent due diligence on all your third party partners to minimize risk and maintain compliance.  

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