As companies increasingly rely on third-party vendors to carry out essential business functions, the potential for data breaches and other cyber incidents increases. In order to mitigate these risks, organizations must develop a comprehensive Third Party Risk Management program that includes strong due diligence.
However, many organizations struggle with implementing an effective TPRM program, in part because of the numerous challenges involved. In this article, we will discuss some of the key TPRM trends and challenges that organizations face.
Vendor Network Complexity
As companies outsource more functions to third-party vendors, the number of potential points of vulnerability increases. This makes it difficult for organizations to conduct a comprehensive risk assessment, and also creates management complexity as organizations try to track and manage the activities of numerous vendors.
Aside from that, with the ever-growing vendor network, companies face an increased risk of a data breach if a single vendor is compromised, which could potentially expose the sensitive data of all the vendors in its network.
Inadequate Due Diligence
In many cases, companies fail to conduct a thorough assessment of a vendor before entering into a contract. This can lead to signing contracts with vendors who are not qualified or capable of meeting the company's needs and can ultimately result in increased risks and costly service failures.
Many companies do not have adequate procedures in place to monitor vendors on an ongoing basis, which also makes it difficult to identify possible threats in a timely manner.
As data breaches become more common, regulators are increasingly focusing on TPRM programs as a way to protect consumers and ensure that companies are taking the necessary precautions to safeguard sensitive information.
Organizations must comply with a variety of regulations related to third-party risk management, including the Payment Card Industry Data Security Standard (PCI DSS), the Gramm-Leach-Bliley Act (GLBA) and the Sarbanes-Oxley Act (SOX).
Failing to comply with these regulations can result in hefty fines, and can also damage a company's reputation.
Organizations are increasingly turning to automation to help streamline TPRM processes and improve efficiency. Automation can help with tasks such as vendor risk assessments, due diligence and contract management.
However, it is important to note that automation should not be used as a replacement for human oversight. Rather, it should be used to supplement manual processes and help make TPRM more efficient.
Environmental, social and governance (ESG) factors are becoming an increasingly important thought in risk management. Organizations are now looking to integrate ESG considerations into their TPRM processes in order to mitigate the risks associated with non-financial threats.
For example, companies may choose to work with vendors who have a strong environmental track record, or who are committed to social responsibility. By taking ESG factors into account, companies can reduce the likelihood of reputational damage in the event of a vendor incident.
As the risks associated with data breaches and other cyber incidents continue to increase, more companies are purchasing cybersecurity insurance. This type of insurance can help cover the costs associated with a data breach, including the cost of forensic investigations, notification expenses and credit monitoring services.
While cybersecurity insurance can be helpful in certain situations, companies should also remember that it is not a substitute for proper risk management practices. Organizations should still take steps to protect themselves from cyber threats, even if they have insurance coverage.
TPRM is a critical process for any organization that works with third-party vendors. By understanding the trends and challenges in TPRM, companies can be better prepared to mitigate risks and protect themselves from potential threats.