Whether your organization is aware or not, it does relly on third-party services providers that help to make business processes more effective and efficient. However, working with third parties also involves risk. Companies should therefore establish a third-party risk management (TPRM) approach.
What is third-party risk management?
TPRM is a strategic approach that aims to identify, assess and manage the risk of working with third-party providers. It helps companies to better understand and manage the risks associated with their third-party providers in order to avoid compliance violations.
Why is TPRM important? “For example, companies need to check whether their third-party providers comply with the SOC2 audit standard. This is designed to ensure that third-party providers protect sensitive customer data from unauthorized access,” explains GreenPages manager Pasteris. “Data protection laws such as the GDPR are also relevant in this respect. If you are compliant yourself, it won’t do you any good if your third-party provider doesn’t comply.”
Core components of an effective TPRM strategy
A third-party risk management strategy should include the following:
Risk identification and assessment: the first step in the TPRM process is to identify and assess the risks associated with working with third-party vendors. This includes analyzing the security measures, data protection practices and compliance standards of the third-party providers. Companies should conduct detailed due diligence to identify potential vulnerabilities and risks.
Contract management: Another important aspect of TPRM is the implementation of contractual clauses that define the responsibilities of third-party providers with regard to compliance breaches. It is important that companies have clear expectations of their third-party providers and that these expectations are set out in writing. This helps companies to protect themselves from legal consequences in the event of compliance violations by third-party providers.
Monitoring and audits: An effective TPRM strategy also includes ongoing monitoring of third-party vendors to ensure they remain compliant. This can be done through regular audits and reviews. Companies should ensure that they have the necessary resources and tools in place to check that their third-party providers are meeting compliance standards.
Training and awareness: Employee training and awareness of the risks and requirements of TPRM is also critical. Employees should understand why TPRM is important and how they can help minimize the risks. Regular training and workshops can help raise awareness of TPRM and ensure that all employees adhere to compliance standards.
Best practices for successful TPRM
These four tips will help with TPRM implementation:
Establish clear policies and procedures: Organizations should develop and implement clear policies and procedures for TPRM. These should cover all aspects of TPRM, including third-party vendor selection, contracting, monitoring and reporting.
Use of technology: The use of technology can greatly facilitate TPRM. There are numerous tools and platforms available to help organizations identify, assess and monitor risk. These tools can also help automate audits and reporting.
Integration of TPRM into enterprise risk management (ERM): TPRM should not be viewed in isolation, but should be integrated into the company’s comprehensive risk management. This ensures that all risks, including those from third-party providers, are considered and managed holistically.
Regularly review and update: The TPRM strategy should be regularly reviewed and updated as necessary to ensure it is in line with current threats and compliance requirements. Companies should take proactive measures to continuously improve their TPRM strategy.
Secure business processes with TPRM
Third-party risk management is an essential part of the compliance strategy of any organization that works with third party vendors. By implementing an effective TPRM strategy, companies can minimize the risk of compliance violations by third-party providers and protect themselves from legal consequences. Risk identification and assessment, contract management, continuous monitoring and employee training are critical components of a successful TPRM.
Further reading on third-party risk management:
6 best practices for third-party risk management
Third-party risk management is broken — but not beyond repair
5 biggest risks of using third-party service providers
Third-party risk management can learn a lot from the musk ox
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