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Guidelines for mitigating third party risk

No business today exists in a vacuum. Organisations of all sizes depend on a plethora of partners and suppliers, including vendors, contract manufacturers, traditional suppliers, agents, distributors, technology providers, franchisees and more.

So says Warren Green, a governance, risk and compliance expert at CURA Software Solutions, who adds that, as businesses grow increasingly dependent on outside parties, the challenge is to build processes to effectively manage and mitigate the potential risks involved in these relationships.

“As your company is responsible for the actions of your partners, the onus is on you to be in the best possible position to survive the disruptions that result when third-party risks manifest,” he says.

The action, or inaction, of a third party could have dire consequences for businesses. “Your company could experience backlash from a third party’s inferior quality service, data breaches resulting from a third party’s inadequate security practices, or supply chain issues as a result of a partner’s poor contingency planning.”

Managing imminent risks

Supply chains exist as an ecosystem, with multiple tiers of partners that serve a manufacturer’s own vendors. The more complicated the supply web, the more challenging it is to identify and manage imminent risks, he explains.

He says potential third-party risks include regulatory and legal violations, reputation damage, information security breaches and financial volatility.

To mitigate these risks, he advises businesses to follow the guidelines set out by the Office of the Comptroller of the Currency (OCC) for assessing and managing third-party risk.

“Firstly, oversight and accountability. Assign clear roles and responsibilities for managing third-party relationships. In addition, integrating the organisation’s third-party risk management process with its enterprise risk management framework enables continuous oversight and accountability.”

Next, he says, is documentation and reporting. “Proper documentation and reporting facilitates oversight, accountability, monitoring and risk management associated with third-party relationships.”

Finally, conduct independent reviews. “Conducting periodic independent reviews of the risk management process enables management to assess whether the process aligns with the organisation’s strategy and effectively manages the risk posed by third-party relationships,” he concludes.

Source: https://bit.ly/2mpRFaE

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