As the risk landscape continues to grow in complexity, it can be hard to implement the best management processes. Diligent has outlined ten best practices for third-party risk management.
It stated that organisations can only mitigate risk when they know what the risks are. Each risk is unique and changes depending on whether the third-party is a vendor, partner, supplier, contractor or something else.
Risk assessments should clarify the type of risk, whether it’s a process risk, compliance risk or contract risk.
Manage IT Risk
Next, Diligent stated that many business processes use various pieces of software. IT vendors are all third-parties and therefore should be included in third-party risk management strategies.
Firms should create a risk profile for each vendor and use that profile to construct processes and protocols to manage the potential risks of that software.
When the risks have been assessed, firms need to implement the correct controls. These should all commence with the contract, which can outline the terms of the relationship and what is expected. It should also be extended into the day-to-day of that third-party’s relationship with the organisation.
Complete Due Diligence
An important part of the management process is due diligence. Diligent explained that due diligence can better visualise the third-party and prevent risks.
Analyse the Entire Supply Chain
Risks do not just end at third parties. Many of these companies use their own vendors, suppliers and contractors, which are referred to as fourth parties. These companies need to be accounted for in an effective third-party risk management system. This includes requiring third parties to seek approval for any fourth parties and gathering all necessary information.
Create a Culture of Compliance from the Top-Down
Effective compliance programs are ones with support from the top. Diligent urges senior management, including the C-Suite and the board should take steps to cultivate third-party relationships that value compliance.
Invest in Risk Management
On a similar note, effective management systems are expensive and need suitable investment in terms of resources and staff. Failing to support the system could lead to data breaches or other compliance failures, which are even more costly.
Monitor the Risk Management Program
Diligent stated that third-party risk management requires specific policies, processes and controls. As these risks evolve, so should the protocols. It stated that organisations should use their internal audit function to continuously monitor and evaluate the effectiveness of their program to stay ahead of emerging risks.
Integrate Risk Processes
Silos create inefficiencies. To prevent this, firms should de-silo their operations by centralising all processes and data. This includes consistent, well-documented approaches, as well as transparent third-party risk information that’s available to anyone who needs it.
Finally, Diligent explained that as the third-party network continues to get more complex, new technology will be crucial to keeping pace. Technology can help firms stay ahead, manage everything from a single place and gain access to real-time insights.
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