Risk assessments continue to be a challenge for organizations regardless of size. At a granular level, a basic risk assessment may be the guide to determine the level of oversight that a third party risk management department conduct on their vendor panel.
In less mature third party risk management programs, the old fallback tool is the Excel spreadsheet. As organizations realize that more efficient systems in place are available, they are then faced with the puzzle of discerning which is the right software to manage the risk assessment process. As with every software available, no two options are created equally. Each will have their own approach on how best to manage the risk assessment.
You can check out our industry whitepaper and turn to page 14 for further insight into how people today are doing vendor management (i.e., are they using Excel, Access, a dedicated platform, etc.).
Benefits of Using Software for Vendor Risk Assessments
Let’s go through several benefits of making the switch to a software for your risk assessments.
- Regulatory Guidance
Many different regulators state that risk assessments should be commensurate with the type of vendor in use.
At the most basic level, what do regulatory bodies require as far as risk assessing goes? We’ve broken it down:
- Risk assessments and the applicable control framework should be adjusted and in line with the criticality of a product or service. Criticality to the business operation is significantly different to a high risk vendor, which has regulatory compliance or federal consumer finance protection laws.
- The risk assessment logic should be configurable so that the third party risk management function can assess based on what is relevant. If the solution is merely a locked down set of control requirements lacking weighting and includes questions which are not relevant to a specific vendor type, then you may be veering into a check-the-box mentality in your third party risk management program and incorrectly categorize the individual vendor risk profiles.
Quick tip: Your risk assessment rating should determine the level of appropriate oversight. If you have more critical vendors in the report than what is accurate, then you’re also creating more work for yourself and your organization. Third party risk management programs rarely have unlimited resources to fund this operation so ensuring your attention is focused on the right vendors is critical.
- Increased Efficiencies Creating Reports
Excel skillsets vary impacting how easy it is to create a report. Even for the proficient, it can be very time-consuming.
How exactly does software increase efficiency? Check out the following 2 reasons:
- Transitioning to a risk assessment software will automate and streamline this process further. Reporting for the c-suite who need snapshots of the vendor panel or quick highlights of potential problem areas will benefit greatly from a streamlined solution. Software offers built-in reporting which is both standard and can be configured and even set up to publish reports to specific individuals on specific topics.
- Imagine for a moment trying to update a massive and increasingly complex Excel report with several thousands of different vendor types. The data entry and version control discipline alone are dizzying. A centralized software, which not only captures vendor information but also tracks all actions within the software by the user account, provides a valuable control element in the way that all actions are now recorded and auditable.
- Software Based Risk Assessments Promote Consistency
Applying the logic of risk assessments which address operational, reputational, credit, financial, strategic and compliance related risks afford the luxury of creating a standard.
A software allows you to focus on the vendor type and discern where most of the risks presented is apparent. The added logic of weighting each question and having a control mechanism whereby a final authority can review the risk analysts initial review of the data allows for a second set of eyes to scrub the initial risk review.
This helps avoid an overly cautious analyst who has a lower risk tolerance than the overall corporate risk profile. The last thing you need is a “Sky is falling mindset” in your risk approach. Risk has to be weighted with reward and is best left to the most senior executive. Given the efficiency gained in this approach highlights how cumbersome managing via Excel can be.
When seeking a software to assist with your organization’s risk assessment process, remember to find the best fit. Here are a few considerations to keep in mind:
- Does the vendor’s customer service meet your expectations? Do a search for complaints.
- Does the vendor employ experts in vendor management to assist with vendor due diligence reviews and questions?
- Does the vendor make updates to the software to improve it? Especially as regulatory expectations change?
The discipline of third party risk management is maturing, but many are still working through some legacy issues regarding adoption of technology to boost efficiencies. Immense focus is placed on technology to increase business at the consumer transactional level. The same mindset should be adopted when considering technology to boost internal risk management procedures.
Be more efficient, and take these 8 actionable tips for vendor management. Download the infographic.