Third-party risk management (TPRM), also known as vendor management, can be a complex and overwhelming process. It involves the assessment, oversight and ongoing monitoring of your vendors. There are many steps to learn about the process, lots of different terminology and sometimes just figuring out who is responsible for each task is exhausting. It’s easy to lose sight of why third-party risk management is an important part of your organization, but we’re here to provide some clarity and remind you why it’s an absolute must.
Understanding Why Third-Party Risk Management Is Important
An obvious example of when TPRM becomes very important is when your vendors have access to your sensitive data. It’s important to thoroughly vet and monitor them to ensure they’re taking the necessary steps to protect your information. But, it’s not only important to monitor vendors if they have access to sensitive data. Third-party risk management is important for many other reasons.
Here are four reasons why a third-party risk management program is important:
- Meeting regulatory requirements: Depending on which industry you fall within, this could perhaps be one of the biggest reasons why a strong TPRM program is important. You may risk severe non-compliance fines and penalties if your organization’s policies aren’t aligned with regulatory guidelines. But, even if your business world doesn’t specifically call for such precautions, it likely will soon. If not directly, other organizations you partner with or sell products to will want to make sure you’re doing your part to tighten up the interconnectivity that’s part of our day-to-day lives. A well-developed TPRM program is quickly becoming a universal expectation.
- Assists with vendor selection: When you go shopping for an item, especially one with a big price tag or that you’re putting value in, do you just pick the first one that pops up on your search? Probably not. If you accept that reading product reviews is worth your while, it should be easy to understand why a vendor risk management process is equally time well spent. Not only are you poised to select the best option for your business needs, you’re also able to take steps to prevent any bad things from happening – being taken off guard is no fun. For example, learning that fancy new software you just implemented is under severe legal scrutiny AFTER you’ve already signed a contract with them isn’t a position anyone wants to be in. With some simple TPRM steps, like assessing risk and criticality and collecting due diligence, you increase your ability to secure a safe and predictable business engagement.
- Creates better strategies and security: A TPRM program is a good way to improve your overall business strategy. Not only are you selecting the right vendors, you’re also managing contracts, finding ways to save money, including critical relationships in your business continuity and disaster recovery planning and more. Your program will also be essential to preventing and/or quickly resolving any cybersecurity issues with your vendors, like data breaches or cyberattacks.
- Increased risk mitigation: Speaking of cybersecurity issues, other risks such as operational, financial, compliance, and more are all unavoidable components of working with third-party vendors. However, a TPRM program is a widely recognized way of assessing, avoiding and/or mitigating those risks. The better prepared you are to manage potentially risky situations, the less likely your organization will face financial, operational or reputational setbacks.
As you can see, a strong third-party risk management program is a universal best practice. You’ll avoid a lot of headaches down the line (not to mention possible fines and penalties) if you take the time to implement a well-written vendor risk management or third-party risk management program.
Does your third-party risk management program check all your organization's boxes? Ensure your program is running efficiently. Download this checklist.