How to Fit Third-Party Risk Management into Your ERM Program

Podcast Transcript

Welcome to this week’s Third Party Thursday! My name is Branan Cooper and I’m the Chief Risk Officer here at Venminder.

Often times, people get confused between Enterprise Risk Management (ERM) and Third-Party Risk. In the past, we’ve covered technical differences about what the differences are. Now today, we’re going to talk about how to include third-party risk in your ERM Program.

Third-party risk is a subset of your enterprise risk management program. Enterprise risk really sits at a very high level in the organization and considers all of the categories of risk associated with your company’s activities – these will span a wide gamut of areas, from operational risk to transaction risk to compliance risk, etc. The ERM program is likely managed by your Chief Risk Officer or risk committee and sets clear guidelines on the level of risk and types of risk that are acceptable in your organization. 

Once that’s done, it’s usually accompanied by robust reporting that considers any changes in product or service that may impact those risks. Noting and reporting trends of risk, particularly when things seem to be escalating, are particularly important to carefully document and report to senior management and the board.

Underlying that, is third-party risk management, which is really the risk associated with outsourcing a particular product or service to an outside company. Various components of vendor risk will feed in to your ERM strategy and considerations. These include the risks represented in areas like: operational risk, compliance risk, transaction risk, financial risk associated with outsourcing a particular product or service or function.

Think of ERM as an overarching canopy that is broad and expansive, while vendor risk digs deep below the surface to uncover risks that ERM simply doesn’t drill down into.

Here are some steps to further integrate your vendor management program within your ERM:

1. Be certain to have consistent standards and align vendor management and enterprise risk standards
2. Identify keys areas of risk at the vendor level and finally be aware that not everything is easily identifiable.
3. Be very specific but also provide some level of flexibility.

When done well, enterprise risk and vendor risk are symbiotic – ERM may very well identify areas we would never want to outsource, while vendor risk may call out third parties we need to step back from or do a deeper analysis of.

Again, I’m Branan Cooper and thank you for tuning in to this week’s Third Party Thursday; if you haven’t already done so, please subscribe to our series.