Most third-party risk management (TPRM) practitioners understand that managing risks associated with third parties can be like sailing a ship through sometimes dangerous waters. Just as a captain must chart a detailed course and remain alert to changing weather conditions, TPRM professionals need a straightforward strategy to navigate risks. They must continually identify, assess, and mitigate potential issues while recognizing the importance of monitoring the horizon for emerging storms that could threaten the organization or its customers.
Managing third-party risks can be challenging because these risks evolve, similar to how ocean waves change due to various factors. Effective TPRM requires proactive identification, management, and continuous monitoring of risks to prevent the proverbial ship from sinking.
Unfortunately, some organizations limit their risk monitoring solely to scheduled intervals, which undermines the goal of continuous oversight. Others take a more relaxed approach, assuming everything is fine until it isn't. Delaying monitoring until a third party faces a serious issue, such as a data breach or a significant decline in performance, puts your organization at a disadvantage. Addressing problems reactively usually leads to chaos and missed opportunities. It's like trying to repair your boat when it’s already taking on water.
So, how can your organization stay safely afloat with proactive and effective continuous monitoring? Let's delve into the essential activities within the third-party risk management lifecycle that lay the groundwork for continuous monitoring and some best practices to implement.
Foundations for effective continuous monitoring
The third-party risk management lifecycle is a blueprint for managing third-party risks effectively. Key activities in this lifecycle create a strong foundation for effective continuous monitoring.
Inherent Risk Assessments
Effective risk management begins with identifying risks. A thorough inherent risk assessment allows your organization to pinpoint and quantify risks related to specific products, services, and third-party relationships. Understanding these risks—whether in cybersecurity, privacy, compliance, finance, or reputation—establishes a baseline for monitoring and identifying new or emerging risks over time.
Due diligence
Well-written contracts
Risk reassessment and periodic due diligence
Best practices for continuous monitoring
While every organization is different, there are best practices for continuous monitoring that can enhance the effectiveness of your efforts.
Use a risk-based approach.
Not all third-party engagements carry the same risk level, so it's essential to identify effective monitoring strategies based on risk types and amounts. Critical or high-risk relationships like cloud providers require robust monitoring, while lower-risk providers, like office supply vendors, need less scrutiny. A risk-based approach ensures resources are allocated to manage the highest risks effectively.
Monitor both risk and performance.
Establish and stick to formal monitoring routines.
Increase monitoring when necessary.
Consider using risk intelligence tools to assist your monitoring efforts.
In conclusion, third-party risks are constantly changing, and organizations that want to manage them must engage in proactive, continuous monitoring to identify potential threats and reduce their impact on the organization and its customers. By following the third-party risk management lifecycle and implementing best practices for continuous monitoring, your organization can more effectively navigate the complexities of third-party risks and prepare for upcoming challenges.