As a business owner, you are constantly on top of your day to day operations and assessing your company’s risk management. You oversee sales, manage budgets, evaluate the needs of your business, consumers and employees alike, as well as manage the risk profile of your business. But are you looking at your vendors and suppliers as closely? The answer is – you should be.
Today, no company works alone. While your day to day needs and operations continue to grow, you may choose to use a third party to outsource services or software to accomplish specific tasks. Organizations work with third-party intermediaries more than ever to help connect with consumers and better grow businesses. Outsourcing some aspects of your business allows you to alleviate some of the unnecessary pressure of operations so you can better focus on what’s next.
While third parties are necessary and help increase the value of organizations, they do not come without risk. As our relationships with third parties continue to grow, so does our need to monitor and pin-point the potential risks they pose.
Third party risk is the possibility of experiencing a negative outcome such as a data breach, operational disruption, or other disadvantageous events when outsourcing services or using software created by third parties to conduct particular tasks within your business.
As a company that utilizes third parties to serve business functions, you must understand that risk is unavoidable. You are trusting a separate entity with an aspect of your business, yet you do not have control over that entity’s processes or business practices. This is why using any third party is risky. However, you can take steps to measure, minimize and prevent your exposure to risk, which may affect your bottom line. Are you doing enough when it comes to third party risk management?
Determining third party risk can be difficult, but it’s not impossible. Here are a few ways to help manage your risk when it comes to third parties:
- First, you should properly vet any third party before establishing a relationship. Upper management and Chief Risk Officers must vigorously assess any third party at the onset to identify and mitigate any potential vulnerabilities within the organization before moving forward. Does this organization have a good reputation? What are their policies? Look thoroughly at regulatory practices and compliance. Do they have systems in place to monitor their compliance?
- Third party vetting doesn’t stop there. While you should always consider your risk with a potential third party before initiating a partnership, you must also continue to evaluate your risk on a consistent basis. As long as you use third parties, you should monitor and determine their risk routinely.
- When onboarding a vendor, use a questionnaire to assess risk levels and determine if they meet your criteria.
- Identify the crucial security, privacy, and business controls vendors must demonstrate before they’re authorized to work with your company.
- Conduct a safety audit to manage and assess your potential risks and esure the vendor is acting in accordance to your guidelines. Use this checklist to monitor existing third parties.
Be sure to do your research when it comes to third parties and their possible risks. Remember, by extension, this company affects the success of your own – for good or bad.