One of the biggest risks an organization faces today involves third parties and how third parties handle an organization’s data. While outsourcing provides benefits such as increased efficiency and cost savings, it also increases an organization’s risk exposure to a myriad of threats.
Any outsourcing or business relationship where another entity accesses, stores, processes or transmits an organization’s data puts that organization at risk. Third parties that process highly confidential data elements have the potential to be the root cause of a data breach, yet both the third party and its customers can experience significant downstream effects.
Third Party Risk Management (TPRM) has become increasingly mainstream over the last decade, for the reasons stated above. However, there is also increased pressure from global and domestic regulators who recognize the impact third parties can have, and have had, on their customers’ operations. Therefore, TPRM should not just be a check-the-box task. TPRM is a practice that involves continuous risk management.
Due to the persistent high demand of TPRM, an explosion of new solutions have emerged to assist TPRM teams identify, manage and validate third party risk. According to Gartner Research, IT TPRM solutions “supply the tools to automate processes, provide risk and performance reporting, and enable better risk-based decision making over the life cycle of a vendor relationship.” Niche TPRM markets are still ripe for opportunity to increase efficiencies, without sacrificing quality. The current use cases vary solution-to-solution, but typically include one or more of the following use cases:
Third party risk identification
Third party risk assessment
Third party risk analysis
Third party risk remediation
Third party risk monitoring
While these tools are helpful in the development and maintenance of TPRM programs, they cannot be solely relied upon to manage or even understand third party risk. It is imperative that organizations maintain TPRM governance and perform monitoring at a frequency and depth that is commensurate with the organization’s risk appetite. Third party risk is not a one-size-fits-all approach. The scope of procured third party goods/services should be carefully considered as part of risk management activities. When data or access to data is shared with another company, organizations must be able to understand how the data flows to/from the company, what type of data elements flow to/from the company, and the relative sensitivity of that data.
The growing market of IT TPRM tools solves many problems; however, there are still many TPRM activities that require skilled human resources. Some companies do not have these resources or expertise or believe their practices are sufficient. Nonetheless, failure to deploy adequate resources to manage TPRM won’t excuse organizations from third party risk, and the potential negative impacts that can occur.
There are many experienced partners in the TPRM space today that can help you fine-tune, mature and run a TPRM program. Much like the IT TPRM solutions that are available, the people who use a variety of them and see a variety of TPRM programs and environments are very adept at developing, recalibrating, managing and assessing third parties. This, in turn, allows your program to do more, with less. Afterall, isn’t that the beauty of outsourcing in the first place?
If you would like to discuss how third-party risk management can help your organization, please contact a member of the Schneider Downs Risk Advisory Services team.
About Schneider Downs Third-Party Risk Management
Schneider Downs is a registered assessment firm with the Shared Assessments Group, the clear leader in third-party risk management guidance. Our personnel are experienced in all facets of vendor risk management, and have the credentials necessary (CTPRP, CISA, CISSP, etc.) to achieve meaningful results to help your organization effectively achieve new vendor risk management heights.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.