It is common for organizations to outsource various business needs in order to save on costs or get access to expertise. When you outsource, you are placing trust in a third party to provide a service or product.
This relationship comes with inherent risks that need to be managed in order to protect your organization's interests. Here are five reasons why effective third-party risk management is essential:
Rising Data Breach Cost
Data breaches are becoming increasingly more costly for businesses, large and small. In fact, recent research shows that the average cost of a data breach has risen to $3.92 million in 2020, with small businesses especially vulnerable due to their limited resources and cyber-security expertise.
Financial losses can be devastating because of loss of customers, regulators’ fines or damage to company goodwill—and those costs compound when business operations must come to a halt as a result of an attack like ransomware.
To avoid these kinds of risks, it is essential that organizations – including small businesses – take proactive steps now to mitigate future hacking attempts by implementing strong cybersecurity solutions that keep their customers’ sensitive personal data safe.
Helps Protect Your Data and Reputation
Effective third-party risk management is an invaluable investment for any business. Its purpose is to protect both your data and your reputation by ensuring the security of all third-party services, products, and relationships.
Through careful monitoring and due diligence, you can maintain oversight over third parties, monitor their performance, and mitigate potential risks from cyber contravention or other malicious activities that could affect your business operations. Taking preventive steps such as auditing system logs, verifying a vendor’s security protocols and engaging in vendor oversight assessments can all help to make sure that your company’s data remains secure in the hands of its trusted partners.
By applying TPRM practices, you can be certain that your information and reputation are safe and secure.
Improves Your Bottom Line
Good risk management practices help organizations to stay compliant with legal and regulatory requirements, but they can also provide tangible benefits that affect their bottom line.
With an effective TPRM strategy in place, you can save money by securing processes are implemented safely and expedited correctly while reducing the risk of security incidents. This means lower costs due to fines or litigation, reduced indemnity insurance premiums, better access to capital at market-friendly terms, and decreased cycle times for onboarding new vendors.
Investing in a process-driven program will not only protect your company legally and morally - it can also lead to greater financial success.
Ensures Business Continuity
Third-party risk management is all about mitigating the risk of disruption to your business operations. By ensuring that third parties adhere to your organization’s high standards and best practices, you can be sure that services are provided according to agreed upon timelines, quality specifications and customer service requirements .By managing risks proactively, you can reduce potential delays and disruptions, resulting in enhanced customer experience, improved operational efficiency and greater business continuity.
With increased regulatory and legal scrutiny, businesses must be diligent in their third-party risk management practices to remain compliant. In the wake of the GDPR, organizations have been devising ways to safeguard that all data shared is being used responsibly and ethically.
By considering factors such as compliance with industry-specific regulations, cyber-security protocols, and data privacy laws, you can make sure that your business operations remain compliant.
Organizations can be proactive in their efforts to protect themselves from these breaches, as well as maintain customer trust by retaining secure access to their data with the help of TPRM.
When it comes to managing third-party risk, being proactive is key. With compliance regulations rapidly changing and the shift of data sharing among vendors becoming more commonplace, organizations need to ensure that their third-party contracts are up-to-date and consistent with new laws.
Failing to assess third-party risk can result in fines, reputational damage, and even legal action. Avoid putting your organization at risk. Instead, prioritize regularly reviewing contracts, conducting due diligence reviews, and expanding security requirements across all vendors where appropriate. Don't wait until it's too late - start managing third-party risk today.