No organization is an island. Every business has partners, whether on the delivery or supply side or in some other capacity. The challenge for compliance leaders is that every partner brings with them additional risk. Third-party risk can be challenging to quantify and protect against – after all, it stems from another organization entirely. The good news is that it can be managed effectively.
Identify Third-Party Risk Over Time
One of the first things compliance leaders must do is change their mindset concerning risk identification. Too often, identification is allocated to recertification or due diligence. However, with the changing ways that organizations are working with and using third-party partners, it becomes more and more important that risks are identified over the entire course of the relationship. What are the risks now? How will those change in a year? In five years?
Risk Management Segmentation
Another critical step here is for compliance departments to segment their risk management approach. As mentioned above, risk management over a relationship’s lifetime is important, but there is more to understand. Both due diligence and recertification still have their place; that place is just at different points in time and for different purposes.
Today, compliance departments should focus due diligence efforts on critical risks. Then, they should establish specific triggers embedded within ongoing monitoring efforts that alert the department to important changes over time. Examples of these triggers include the need to align with a business’s specific risk tolerance, as well as the need for real-time insights into emerging risks.
Finally, recertification comes at the end, and departments must create controls and incentives that monitor for change. For instance, it becomes necessary to help strategic suppliers own their reputation management across the entire supply network. It also becomes necessary to help suppliers find the tools they need to ensure a consistent approach to their processes.
Third-Party Risk Management – the Results
When compliance leaders take proactive action and work toward the goals discussed above, the results can be significant. For instance, it becomes much simpler to surface third-party risks before it is too late for course correction or to ameliorate the situation.
Another advantage here is that compliance departments can remediate third-party risks quickly, long before they cause damage or disruption. Finally, it drives improved satisfaction with business partners thanks to the increased speed of due diligence and onboarding, as well as the clarity and directness of engaging with third-party partners.
No Once-And-Done Approaches
Finally, it is important that compliance departments understand that they must take ongoing actions. There is no once-and-done approach that will work here. Instead, it becomes critical that an iterative approach is taken with all third parties to manage the risks they create and the hurdles those risks pose to the organization.
While there is no way to eliminate third-party risk, it is possible to manage those risks effectively, while building strong relationships that support the success of the organization.
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