Why It Is Important to Assess and Monitor Third Party Risk
The handling of risks associated with third parties is essential to avoiding numerous problems. Failing to assess these risks can open up an organisation to supply chain attacks, data breaches and cause reputational damage. Due to these factors, governments around the world are enforcing regulations in order for organisations to properly monitor and control vendor risk. This includes keeping track of both sub-contracting and on-sourcing arrangements (fourth-party risk). Read on to learn more about why it is important to assess and monitor third party risk.
It is increasingly becoming more and more important to assess and monitor third party risk. This is in part because the creation, delivery or support of products and services may involve collaboration with external parties where data and/or network access with a third party may be shared. This poses new and significant reputational, commercial and compliance risk for many companies. While outsourcing can bring many benefits, it also introduces a new set of risks that must be carefully managed.
Why Assess and Monitor Third Parties?
One of the main reasons why it is important to assess and monitor third party risk is to protect your company’s reputation. When a third party experiences a breach, it can have serious consequences for your business. For example, if a vendor that you work with experiences a data breach, your company’s sensitive information could be exposed, leading to serious damage to your reputation and financial losses.
Another reason why it is important to assess and monitor third party risk is to protect your company’s assets. Third parties often have access to your company’s intellectual property, financial information, and other valuable assets. If these assets are not properly protected, it could lead to financial losses and legal consequences.
Furthermore, relying on third parties can also introduce compliance risks. Different countries and regions have different laws and regulations regarding data protection, privacy, and other issues. If a third party that you work with is not compliant with these laws and regulations, it could lead to fines and other legal consequences for your company.
To effectively assess and monitor third party risk, it is important to have a thorough understanding of the third parties that your company works with and the risks that they pose. This includes conducting due diligence on potential third parties, regularly reviewing and updating third party contracts, and implementing proper security measures to protect your company’s assets.
Assessing Third Party Risk Can Be Time Consuming
A survey by Prevalent in 2020 showed that unless third party risk teams use automating technologies, assessing third party risks can take 4-6 weeks. This is because to assess supplier risks, risk teams have traditionally relied on lengthy questionnaires sent via email that can take a long time for the receiving party to review and complete. As service providers to internal customer stakeholders, having to wait for over a month for risk and due diligence checks to be completed seems like a terrible service level commitment; but it does not have to be that way.
Streamlining Risk Assessments
Modern Vendor Risk Management platforms, like Venminder or Phinity allow multiple risk assessments, from cyber risk, through to compliance-led assessments (like Modern Slavery, privacy, etc) to be shared with external parties in slick web portal interfaces that promote collaboration and the submission of supporting documentation to provide evidence of compliance to certain questions and requirements.
Continuous Third Party Risk Monitoring
Assessing vendor risk at a particular point in time is useful when selecting a potential vendor or partner, but once you enter into a business relationship and particularly, if you are planning to share data or grant network access to the third party, you should be looking to continuously monitor the cyber risk that your vendors bring to your business… and the potential financial risk that they provide should they suffer a breach of your company’s data.
To do this effectively and efficiently, continuous risk monitoring tools, like Black Kite, should be in your vendor risk management tool bag. For financial, ESG and geo-political risk monitoring, you should consider tools like Supply Wisdom, which is also supplied by Elasticito.
In conclusion, assessing and monitoring third party risk is crucial for protecting your company’s reputation, assets, and compliance. By taking the necessary precautions and regularly reviewing and updating your third party relationships, you can effectively mitigate the risks associated with outsourcing.
Still have questions about why it is important to assess and monitor third party risks? Elasticito’s team has deep knowledge in helping companies to assess the cyber risk and financial impacts posed by key third parties, by using automating enabling technologies and expert services. Contact Elasticito for any third party risk assessment and monitoring needs and services your organisation may require.