Third parties are an integral part of many organizations. Whether it’s a valuable software integration or a trusted consultant, third parties can enhance an organization’s operations and capabilities. But without third-party risk management best practices, third parties can also introduce risk.
The rise of remote working and the ever-evolving risk landscape make working with third parties riskier than ever. Organizations are evolving beyond simple risk surveys to a more comprehensive approach that can better protect sensitive information, strengthen security and create a more competitive organization.
Here, we discuss why implementing third-party risk management best practices are important and ten steps — including utilizing third-party risk management solutions — to help mitigate third-party risk organization-wide.
Why Is It Important to Implement Third-Party Risk Management Best Practices?
Third-party risk management helps organizations understand what third parties they use, how they use them and what controls they need to mitigate the risks that those activities can introduce.
The third-party landscape is more complex than most organizations think. Keeping track of all third parties, the permissions levels they need and the protocol they should follow can be time-consuming and costly. But so can breaches. Implementing best practices for third-party risk management is essential because it’s the best way for organizations to protect against myriad risks — and safeguard their bottom line.
10 Third-Party Risk Management Best Practices
The third-party risk landscape is more complex than ever. Third parties are spread worldwide, accessing cloud data and virtual systems and logging on using their mobile devices. These are the best practices to secure every step of the third-party lifecycle:
- Assess Risks: Organizations can’t mitigate risk until they understand what risks they face. Each of these risks is unique and can change depending on whether the third party is a vendor, partner, supplier, contractor or something else. This risk assessment should also analyze the type of risk, whether it’s a process risk, a compliance risk or even a risk related to their contract.
- Manage IT Risk: Many business processes involve a variety of different software. IT vendors are third parties, which is why third-party risk management strategies should also include IT vendor risk. Create a risk profile for every vendor, then use that profile to construct processes and protocols to manage the potential risks of that software.
- Implement Controls: Once organizations understand the risks they face, they should implement controls for their third parties to follow. This should all start with the contract, which can stipulate the terms of the relationship and what’s expected of the third party. But it should extend into the day-to-day of that third party’s relationship with the organization. Risk teams should also adopt continuous monitoring to ensure that all controls are correctly implemented and followed.
- Complete Due Diligence: Organizations are responsible for screening out possible bad actors or potential partners that don’t place the same value on risk management. A thorough due diligence process can head off numerous risks down the line. An effective onboarding process should score the third party based on their product or service, their location and other factors. Then, the risk team should complete the due diligence required for that risk score.
- Analyze the Entire Supply Chain: Many third parties work with their vendors, suppliers and contractors, often referred to as fourth parties in third-party risk management. Organizations need to ensure that the entire supply chain is compliant. It’s best practice to include fourth parties in contracts so that they’re within the framework of the risk management strategy. 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: Compliance is at its best when third parties understand the importance of mitigating risk. This should start with senior management, including the C-Suite and the board. These individuals are responsible for third-party risks, so they should also take steps to cultivate third-party relationships that value compliance.
- Invest in Risk Management: Effective risk management can be costly. But not as expensive as a data breach. Investing in third-party risk management early can save money in the long term. Teams should be adequately staffed and trained and have access to the right software solutions to manage risk proactively.
- Monitor the Risk Management Program: Third-party risk management requires specific policies, processes and controls. As risks evolve, these protocols should, too. Organizations should use their internal audit function to continuously monitor and evaluate the effectiveness of their program to stay ahead of emerging risks. This is also a great way to stay on top of risk metrics and report back to the board so they have the assurances they need to move forward.
- Integrate Risk Processes: In many organizations, different teams work with different third parties. And because they have different needs, their approach to risk becomes siloed. This can create gaps in oversight, introduce redundant processes and make it difficult to get a comprehensive view of the organization’s risk. Mature risk management programs should de-silo their approach by centralizing 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.
- Utilize Technology: Manual risk management can only go so far. As the third-party network becomes more complex, organizations need a more efficient way to stay ahead of the risks they face. Third-party risk management solutions can help organizations manage all third parties in one place, track risk, prioritize remediation and provide real-time insights into risk.
Manage Third Parties With Ease
Third-party risk management best practices are essential. Implementing them can help organizations get ahead of potentially costly cyberattacks. But third-party risk management also faces many challenges.
Learn how to set up a third-party risk management framework that tackles these challenges, sets up good governance and paves the way for mutually beneficial third-party relationships. Download the Third-Party Risk Management Essentials e-book from Diligent to learn more.