What Is TPRM?
Third-Party Risk Management (TPRM) focuses on protecting your business against those risks associated with using third parties such as vendors, contractors, service providers, and other partners outside of your organization.
Examples of risks when using third parties can be seen in the news every day, from having a service provider hacked to a major vendor experiencing supply chain shortages.
When these events happen, it can equal disaster for your company. TPRM companies help minimize that risk so you and your business are protected.
If you are not familiar with the term Third-Party Risk Management, you may have heard one of the other names that mean the same thing.
This includes vendor risk management, supplier risk management, and supply chain risk management. These terms all mean roughly the same thing, managing your company’s risk depending on third parties.
TPRM Best Practices
Prioritize And Categorize Vendors
Not all vendors are equal when it comes to your organization and some will have more of an impact on your business than others.
Typically, vendors are categorized in Levels 1-3, where 1 is the highest risk and can cause the greatest impact should they experience some sort of delay or complete shutdown.
Level 1 vendors are where an organization will focus its resources and assessments. During an assessment, these vendors will be looked at for the following criteria when being assigned a risk score.
- Is the organization sharing proprietary or highly confidential information with the vendor?
- Is personal data being shared with the vendor?
- If personal data is being shared, is it of a sensitive nature?
- Is personal data crossing borders when being shared?
- Is this vendor critical to the operation of the organization?
The impact on the organization in one of these critical areas is also taken into consideration.
Will the organization be critically impacted if data is lost momentarily or long-term? Or will the business be critically impacted if there is permanent deletion or destruction of that data?
Pinpoint Areas For Automation
Having as many functions automated can minimize the risk to an organization. Areas of automation to focus on include;
- Using electronic intake forms to automatically sign on new vendors
- Using online templates to collect the data needed for assessing the risk of that new vendor
- Automatically route a risky vendor to an individual within an organization with details about potential red flags
- Vendor reviews that are automatically triggered yearly or monthly to catch issues quickly
- When vendor contracts come due, send a template to reassess the risk
- Send notifications to relevant stakeholders regarding the risk to the vendor
- Automatically running reports based on the desired schedule
Think beyond the risk of a cyber breach
Cyber security is crucial nowadays with breaches being reported on the news daily. These attacks are not the only risks involved though when it comes to the third parties your organization deals with. Some other types of risks include;
- Risks to your company’s reputation
- Risks to your business location
- Geopolitical risks
- Strategic risks
- Risks involving the finances of the company
- Credit risks
- and others
Many factors are taken into consideration when you are implementing a successful TPRM system.
Phases Of The Third Party Risk Management Cycle
Phase One – Identification Of Third Parties
Knowing the third parties you currently have and those you may wish to do business with in the f f future is key in assessing the risk score. Some vendors may have been through this process before and can provide the organization with past risk assessments to make the process easier.
Phase Two – Evaluating The Risk And Selecting The Vendor
Based on the information provided, organizations will study the evaluations of their vendors and choose those they wish to do business with based on their scores.
Phase Three – Risk Assessment
This phase is time-consuming and can be reduced in length by using something called third-party risk exchange which allows sharing of information of the vendor in question. In today’s digital age, information-sharing systems like this can reduce the process of risk evaluation to half the time.
Phase Four – Mitigating The Risk
This is usually done through contract codicils and putting systems into place based on where the risk is the highest.
Benefits Of TPRM
When your organization has an effective risk management program running in the background, several areas of that business improve. Areas of improvement include;
- customer confidence
- cost savings
- time efficiencies
- fewer redundancies
- quicker reporting access
- friendlier reporting formats
- efficient audits
- quicker onboarding of new vendors
- increased vendor performance
- greater risk mitigation
- and others
An effective TPRM system can save a company time, and money, and reduce if not eliminate costly security breaches. When streamlined to fit a particular organization’s needs, this system will help an organization navigate today’s risks and protect their business for years to come.