Normally, most companies depend on third parties that provide them with supplies or services, so their exposure to risks is substantially increased. That is why the importance of vendor risk management and how risk management is carried out in the company is vital for its survival in a highly competitive market.
This type of relationship brings with it a large number of opportunities in terms of customer satisfaction and in the diversity of products to be offered, but it is necessary to establish safety limits against risks to third parties. At this point, the figure of the stakeholders is important, the main affected by the activities of third parties. These groups are essential when developing the strategic planning of the business, so they must be assured of an environment of trust that ensures strategic growth. Therefore, today collaboration with third parties is the key to success, but also a source of risk. That, if not managed, can have fatal consequences for the company. To understand a little more about what this article will deal with, the main third parties that generate alliances with companies are suppliers, brokers, agents, or consultants, among others. Risks
To all this, the organizations are the first responsible for the management they make of the third parties with whom they have relationships.
How to tackle them
The best way to deal with external companies is by confronting them through concrete measures derived from the previous analysis. To do this, every company or organization must develop a series of capabilities to foster trust and ensure cooperation. In this sense, we find five relevant components to reinforce exposure to risks to third parties, through the design and implementation of coherent functions that provide efficiency. These are:
Oversight and governance
Third-Party Inventory
Risk approach and models
Policies and standards
Technology, automation, and reports
Through this system, there will be a greater knowledge of relations with third parties, thanks to the establishment of controls that allow them to be known in greater depth.
Oversight and governance
The leadership of the organization's governance and its supervision is fundamental, and even more so if good practices are integrated into the internal functioning of the company. Thus, it is essential to assign responsibility, which usually falls on the functions of information security or compliance. This varies as the risk management system matures. In addition, a government structure must be established as the backbone for their supervision and reduction. And here the stakeholders are also very important and must be involved in risk management to achieve true success.
Third-Party Inventory
You have to know and inventory all the third parties with whom you have a relationship, assigning them a classification and evaluation to manage them. Thus, identifying the person responsible for the relationship with the company will be key, since it will speed up the management and data collection necessary for the inventory much more. In addition, it is advisable to create categories to prioritize actions against the management of third-party risks. Finally, this inventory must be updated against possible changes or modifications by either of the two parties.
The risk approach and models
To establish a risk-based approach, it is necessary to develop a model that considers the context of the organization, determining the level of risk that it is willing to tolerate. They must establish a system for the identification, evaluation, and response to risks of external origin, to strengthen and improve their strategies and be better equipped to face possible negative impacts. In addition, as a positive consequence, a maximization of the potential of a company is obtained.
Policies and standards
Implementing policies and standards makes it possible to define the purpose and the different stages of the framework for risk management, assigning roles and responsibilities to the stakeholders. Here, the Steering Committee is primarily responsible for compliance with established policies and standards, in a way that promotes accountability among the most important stakeholders. In other words, any organization needs to develop a series of procedures that generate standards and guidelines that allow the management of risks due to third parties. Without these factors, it is difficult for the model to work.
Risk management processes for third parties
Once the process for risk management has been designed, it must be carried out. In other words, it is useless to have a risk management framework if it is not put into practice in the end. Thus, for the risk management process to be fully effective, it must be considered as a continuous life cycle for every one of the relationships with third parties. With this process, third parties are evaluated and qualified based on their level of risk, to proceed with their monitoring.
Technology, automation, and reports
How to automate risk management in organizations is based on managing a risk management software and technologies that help avoid or mitigate risks. Thus, using this type of technology will favor the automation of processes, the analysis of information in real-time, and the generation of reports instantly, which will allow for more efficient decision-making.
