7 Ways to Master Third-Party Risk Management in Today's Complex Business Landscape

In today's interconnected business environment, third-party risk management permeates every aspect of an organization, from operational risk management (ORM) to information technology risk management (ITRM), enterprise risk management (ERM), and governance, risk, and compliance (GRC). As the founder and CEO of Wheelhouse Advisors, my mission is to help organizations navigate the evolving digital landscape and adapt their third-party risk management strategies accordingly. This article will provide an updated and comprehensive guide to third-party risk management, highlighting its critical role in integrated risk management (IRM) and exploring key insights and best practices.

1) Remote Work and the Expansion of Cybersecurity Threats

The COVID-19 pandemic has accelerated the shift towards remote work, leading to an increase in data breaches and cyberattacks (Wheeler, 2022). A recent survey by Gartner reveals that 68% of respondents believe third-party risks have increased due to the pandemic, with 49% of respondents indicating a significant or severe impact on their organization (Gartner, 2023). Prioritizing cybersecurity within third-party risk management programs and collaborating with suppliers and vendors with robust cybersecurity practices are crucial to mitigate these risks in the broader IRM framework.

2) Regulatory Changes and the Impact on Third-Party Risk Management

The evolving regulatory landscape, including the introduction of new regulations such as the European Union's ePrivacy Regulation, has significant implications for third-party risk management (Wheeler, 2022). The Gartner survey reveals that 55% of organizations have experienced a third-party risk management regulatory or contractual breach within the past three years (Gartner, 2023). Organizations must stay up-to-date with the latest regulatory changes and align their third-party risk management programs with the current requirements, ensuring compliance across ORM, ITRM, ERM, and GRC.

3) The Importance of ESG Factors in Third-Party Risk Management

Environmental, Social, and Governance (ESG) factors have become increasingly important in the broader IRM framework, requiring companies to manage their own ESG performance and that of their suppliers and other third parties (Wheeler, 2022). The Gartner survey indicates that 75% of respondents have started or plan to start integrating ESG factors into their third-party risk management programs within the next two years (Gartner, 2023). Organizations should include ESG criteria in their supplier assessments and collaborate with third parties to improve ESG performance to address this growing concern.

4) Leveraging Technology to Enhance Third-Party Risk Management

Technological advancements, such as artificial intelligence and machine learning, have become increasingly prevalent in third-party risk management (Wheeler, 2022). Gartner suggests that adopting these technologies can provide greater visibility into the third-party ecosystem, helping organizations better manage risks within the larger IRM context (Gartner, 2023). A recent IDC white paper highlights the need for organizations to leverage technology to automate and streamline third-party risk management processes, including due diligence, risk assessments, and ongoing monitoring. Embracing technology can enable organizations to stay agile and adapt to the evolving risk landscape more effectively.

5) Strengthening Collaboration and Communication with Third Parties

Effective third-party risk management requires open communication and collaboration between organizations and their third-party vendors or suppliers (Wheeler, 2022). Establishing clear expectations, sharing information on risks and vulnerabilities, and working together to develop solutions can significantly reduce potential risks associated with third-party relationships. The Gartner survey emphasizes that regular reviews and audits of third-party performance can help organizations identify and address issues proactively, further enhancing the resilience of their third-party risk management programs (Gartner, 2023).

6) Developing a Comprehensive Third-Party Risk Management Framework

A robust third-party risk management framework should encompass all areas of an organization, integrating ORM, ITRM, ERM, and GRC (Wheeler, 2022). This comprehensive approach enables organizations to identify and manage risks across their entire third-party ecosystem, ensuring that potential vulnerabilities are addressed in a coordinated and consistent manner. Key components of an effective third-party risk management framework include risk assessments, due diligence, ongoing monitoring, incident response planning, and continuous improvement. According to the Gartner survey, organizations must prioritize the development of a comprehensive framework to effectively manage third-party risks within the larger IRM context (Gartner, 2023).

7) Building a Culture of Risk Awareness and Accountability

To fully integrate third-party risk management into the broader IRM strategy, organizations must foster a culture of risk awareness and accountability at all levels (Wheeler, 2022). This involves providing training and resources to employees, promoting open communication about risks and vulnerabilities, and encouraging a proactive approach to identifying and addressing potential issues. The Gartner survey highlights the importance of embedding risk management principles within the organization's culture, ensuring that third-party risk management remains a top priority and becomes an integral part of their overall risk management strategy (Gartner, 2023).

As the business landscape continues to evolve, third-party risk management remains a critical component of integrated risk management. By focusing on cybersecurity, regulatory changes, ESG factors, leveraging technology, strengthening collaboration and communication, developing a comprehensive framework, and building a culture of risk awareness and accountability, organizations can effectively manage third-party risks and enhance their overall risk management strategy.

References

Gartner. (February 21, 2023). Gartner survey shows third-party risk management misses are hurting organizations.

IDC. (December 2022). Beyond the organization: Managing risk and compliance in third-party relationships.

Wheeler, J.A. (July 18, 2022). Tips to build a stronger third-party risk management program. InformationWeek.