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Advocating for a 2022 Third-Party Risk Management Budget

5 min read
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Budgets are often central to many business strategies and decisions, especially when working with third-party vendors. Because they’re often a critical part of an organization’s operations, the budget for third-party vendors must be prioritized to ensure that both value and possible risk are accounted for.

Due to the complex nature of third-party risk management (TPRM), you must work from the perspective of asking yourself questions like:

  • What are the risks?
  • What are the potential impacts?
  • How can we mitigate them?

It might start to feel like you need to paint a picture of utter calamity before you can get anyone's attention. Shouting "the sky is falling" didn't work for Chicken Little, and it won't work for you, especially when asking for money for your TPRM program. So, what are you to do?

As this budget season approaches, we would like to share some considerations for your TPRM budget and share some strategies for getting those precious dollars.

Considerations for a TPRM Budget

All organizations structure budgets differently, and knowing who holds the purse strings for TPRM is essential. Even if you don't have authority over those dollars, it doesn't mean you can't have influence. If you don't own the budget, collaborate with those who do, and make sure they understand the business case behind your requests. Consider the following:

  • Where should the money go internally? Determining where TPRM dollars should be allocated isn’t always a straightforward process. When you feel understaffed, it may seem logical to request an additional headcount in support of TPRM. However, you need to be sure that adding headcount is the correct answer. For example, suppose you’re using manual processes, such as spreadsheets, to manage TPRM processes. In that case, it takes significantly more time to accomplish those tasks than it would through an automated software solution. Manual processes also increase the potential for errors and rework that can intensify already inefficient processes. In this case, allocating dollars for a TPRM technology solution would better use funds than adding additional personnel.
  • Will the money help expedite any processes? Suppose your business vendor owners complain about the long lead time required for vetting and onboarding new vendors. This is a genuine concern because your organization uses third parties to either realize an opportunity or fix a problem. The longer it takes to get those third parties up and running, the longer it takes to realize the intended benefits. Therefore, consider whether your TPRM budget can be used to alleviate the time consuming processes of vendor vetting and onboarding.
  • Should the money support outsourcing? Due diligence gets backlogged now and then, and having additional subject matter experts (SMEs) to review and evaluate the vendor's control environments can shorten the queue. However, the due diligence volume varies, making it hard to predict what percentage of a risk expert's time would be spent on due diligence assessments and reviews. Maybe a better option is outsourcing backlogged due diligence reviews, on a per case cost basis, only paying for what you need, when you need it. This solution avoids the costs of additional headcount (salary, benefits, equipment, office space, etc.) and the costs associated with recruiting, training and managing an employee.

Remember, identifying solutions that provide better long-term value for the organization should be your priority when identifying your TPRM budget needs.

Cost Savings and Cost Avoidance

In 2021 a "do more with less" mindset has been exaggerated as organizations struggle to recover from the pandemic. Cost savings are front and center, but what about cost avoidance?

Consider what can happen if TPRM is not running optimally. The financial impacts can be significant and costs associated with vendor performance failure are generally not included in budgets. Everyone understands the importance of saving money and lowering costs. However, avoiding situations and issues that result in unplanned expenses or lost revenue is equally important. It isn't just about potential unplanned expenses; there are many other impacts, financial and otherwise, resulting from a third-party failure that affect the bottom line.

For example, a third-party failure has the potential to severely damage your organization's brand and reputation, therefore impacting customer retention and revenue. According to Deloitte's 2020 TRPM Global Survey, 30% of participating listed companies believe that share prices could fall 10% or more due to a third-party risk management failure. Also, almost half of organizations surveyed believe the financial impact of a failure by a third party or subcontractor has at least doubled over the last five years, with a tenfold increase for one in five. Third parties indeed provide your organization the opportunity to drive efficiencies, extend your products and services offerings, augment staff or access specific expertise. Still, they also can severely damage your organization if not managed appropriately.

How to Advocate for a TPRM Budget

Let's face it, for many organizations, TPRM is not always considered a priority. This means that going to bat for your budget can be very tricky, and you need to be strategic in what you ask for and how you ask for it.

Here are some strategies you can use when requesting TPRM budget:

  • Leverage your data. When advocating for new or increased dollars, make sure you have a data-driven business case supporting your request. Whether you address an increase in vendors year-over-year or the expanded cycle time to complete due diligence, present the facts with your request. It’s far more effective to state that additional TPRM resources are necessary due to a 30% uptick in vendor volume vs. saying that your team is overwhelmed with work.
  • Focus on the business priorities. Always focus on what TPRM needs to help the business succeed. This means you must know what is going on and the priorities for the organization. Let's use due diligence cycle time as an example. Suppose your organization is ready to launch a new product or service set to be a game-changer for your organization. However, a specific vendor must be in place before any of that can happen. If due diligence cycle time has increased from 60 days to 90, that could be 30 days or more of lost revenue. When requests are framed in context to a specific business or revenue issue, they have more impact.
  • Demonstrate the value to the organization. Make sure you keep value as your objective when building your budget. Be specific and highlight the annual cost savings, increased efficiency or productivity improvements your proposal will deliver.

In conclusion, identifying and asking for budget dollars isn't a simple exercise. It requires research, data and the ability to reposition TPRM needs as supporting the business and add value to the organization. Remember, you’ll never get everything you ask for. Still, by laying out a data-driven and compelling business case, your success is more likely.

Realizing the value of third-party risk management as a strategic enabler for your organization is important and could help you convince those in charge of the budget. Download the eBook.

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