The Importance of a Third-Party Risk Management Budget

Third-party risk management is a strategic advantage, and like many things in life, to do it well, it does come with a price tag. And while it can sometimes be a hefty one, when it comes to protecting your organization and customers, it’s difficult to put a price on peace of mind.

Top 7 Reasons a Third-Party Risk Management Budget Is Important

Let’s look at the top reasons a third-party risk management budget is critical. A proper third-party risk management budget helps you with the following:

1. Maintaining regulatory compliance. Many organizations fall within a regulated industry and need to follow regulatory guidelines, and to do that properly, a budget ensures the appropriate funds are allocated to put – and keep – the right controls in place. For example, not having a sufficient budget allocated to vendor cybersecurity could ultimately put sensitive data at risk… you could suffer a security breakdown and very well be dealing with a lawsuit or a consent order.
   
   
2. Efficiency and results. When allocating funds correctly, having a well-developed third-party risk management program can help drive an organization and create cohesion. Additionally, having concrete governance documents, like a policy and program, will serve as a reference point for all lines of defense managing third parties.
   
   
3. Preparation. Have you considered what would happen if your third-party vendors weren’t able to continue operations in the event of a natural disaster or global pandemic (like we’re currently in)? Until recently, many organizations opted out of disaster recovery or business continuity plans simply because of cost. Unfortunately, many have seen the cost of not preparing. A comprehensive third-party risk management program can help an organization anticipate and be more responsive to problems when they arise.
   
   
4. Prioritization. You get what you pay for, and the same is true when it comes to third-party risk management. Knowing what you can spend can better help you evaluate your organization’s priorities and allocate the funds towards the areas of business and good partners who will support your objectives. You’ll also be able to drive down costs by identifying expense risk and comparing vendors in an effective selection process. Risk management helps identify and consolidate, or completely eliminate, duplicate use of vendors by different lines of business.  
   
   
5. Board support. When you’re able to create a concrete third-party risk management budget and explain allocation decisions based on sound business practices, the better able your senior management team and board will understand and support those business decisions.
   
   
6. Customer satisfaction. A sound budget means stronger operational control, and ultimately, better customer satisfaction. Monitoring service levels through vendor oversight better ensures your organization and customer needs are being met.
   
   
7. Reputational risk. What’s the true cost of not investing in third-party risk management? Unfortunately, sometimes it can be the loss of your reputation at the fault of you vendors, but with the blame on you because you didn’t perform adequate third-party risk management on them. And, the longevity of your organization could be at stake. It’s important to ask yourself if you’re willing to take that risk.

Without a doubt, third-party risk management is complex and can be expensive upfront. However, it’s also a critical component to the health of an organization. To effectively protect your organization, you need to ensure you have the right amount of resources and tools dedicated to managing third-party risk, whether it’s increasing your full-time or part time employee staff or outsourcing. Ultimately, you need to be able to hire a team that gets the job done correctly. Trust us, it’s worth it.

There is a significant ROI that you can achieve by investing in vendor management. Download the eBook.