Managing Vendor, Supplier, and Partner Risk
Third-party risk management is now a critical component of any enterprise risk management framework as suppliers are more involved in all aspects of business, and vendors are increasingly relied upon for crucial deliverables.
But, who is responsible for monitoring these relationships, and making sure they are operating as intended?
Significant financial, legal, operational, and strategic risks can stem from non-compliant relationships with other entities, such as data loss from a cyber attack, or a dip in earnings because of reputational fall-out. Many organizations use contracts as a tool to safeguard from third-party risk, but even the greatest contracts cannot anticipate every business, reputational, or environmental threat.
And, despite best efforts, changes happen within organizations, and information may not be shared with the appropriate stakeholders. Unfortunately, these knowledge gaps may lead to misalignment, or control failures.
SC&H Group helps global organizations assess and mitigate third-party risk – along with the internal and external factors contributing to these risks – to increase transparency, efficiency, and savings. And, like each relationship cultivated over time, identifying what is working, and what may need improvement, can ultimately benefit all parties.
Understanding Risk Indicators
Individuals may be focused on evaluating specific risks, rather than reviewing risks holistically to understand and quantify overall exposure. Risks can be categorized as:
- Financial: Risks that could be detrimental to your revenue, earnings, and future savings opportunities.
- Legal/regulatory: Risks that could have significant legal consequences. If any laws are violated, you could still be responsible.
- Operational: Risks that could interrupt the normal course of business.
- Strategic: Risks that could jeopardize your mission, goals, and values.
Sometimes, it is simply a matter of recognizing the signs that a review may be required. It is important to be aware of different organizational risk indicators when deciding which relationships may need to be evaluated. This process should not only assess your internal risk drivers related to people, processes, and policies/procedures, but also analyze external challenges that can protect from future non-compliance.
There are a number of scenarios and indicators that signal it may be time to review third-party relationships. A few of these indicators include, but are not limited to:
- Making a major investment
- Having a decentralized organizational structure
- Going through a business combination, such as a merger or acquisition
- Changing personnel
- Being a supplier, vendor, or customer’s largest account
More often than not, organizations know they need to assess third-party risk, but may get overwhelmed, or may not know where to start based on the nuances of each supplier, vendor, or customer relationships.
For example, you may be thinking: how can I get started? Do I begin with an IT risk assessment? Or, should I focus my efforts on supply chain risk management? What about vendor due diligence?
At SC&H Group, we encourage clients to begin assessing third-party risk by first analyzing organizational receipts and spend. Our approach provides visibility into who you are doing business with, and the scope and scale of relationships throughout the organization.
We believe this starting point is a critical first step in the overall third-party risk management framework because this information is based on facts and data. Our team helps to quickly identify your highest areas of risk by performing an opportunity review. The end goal is to create a well-crafted strategy, making the process more effective and efficient for all parties.
Third-party risk management shouldn’t be disruptive, antagonistic, or even difficult, but rather, seamlessly integrated into your organizational culture.
By understanding risk indicators, and reviewing both receipts and spend, you can better pinpoint vulnerabilities while enhancing trust, transparency, and savings within your organization.