Risks associated with third parties are growing exponentially. Because these trends are accelerating, it makes the work of managing third-party risk that much more difficult. In addition, while team resources are generally staying the same or reducing due to headcount adjustments or hiring freezes, the volume and extent of the work is compounding. We’re going to talk through today’s trends in TPRM, the related challenges that groups are facing, and software solutions that can benefit your organization.
Trend 1: Ever More Third Parties
Third parties are becoming an increasingly critical part of how businesses operate. Due to the digital transformation of the last few years and the ongoing remote workforce, this is not expected to change any time soon. Increasingly, third parties enable core business operations, as well as provide the interconnectivity between different operations, making them absolutely essential — and far more damaging when something goes wrong.
A challenge related to this area is limited vendor visibility. With no single source of truth, oftentimes vendors are tracked in a decentralized way across multiple departments, business units, and spreadsheets. Meaning, we don’t have a full account of the third-party universe. With that, there often isn’t a structured onboarding process for the company to request or update relationships with vendors. Simply put, teams don’t know where to go when introducing a new third party. As the vendor list grows, the likelihood of things falling through the cracks or being forgotten also increases.
A software solution in this area allows companies to improve their third-party visibility. It creates a centralized inventory and also establishes an enhanced, standardized, and streamlined vendor onboarding process that can help reduce risks. Meanwhile, the software also provides vendor dashboards and risk profiles.
Trend 2: Hackers Increasingly Using Third Parties to Gain Access
Third-party breaches account for approximately 20% of all data breaches that companies experience, according to IBM’s latest data breach report. With Cybercrime-as-a-Service resources enabling a whole new slew of bad actors to attack organizations, paired with an unknown supply chain landscape when systems are outsources to third parties, the risk of hacking is at an all-time high. Not long ago, Volkswagen Group of America shared that an unauthorized source captured personal information from 3.3 million customers in the U.S. and Canada. These third-party breaches tend to be more public, have a larger splash zone, and are more expensive to address. IBM also reports that the average cost of a data breach in the United States is $9.5 million. In essence, it’s a costly mistake to not stay on top of your third-party relationships.
A related concern in this area the frequency of manual assessments and workflows. Traditional vendor assessments are typically done via spreadsheets or even a simple checklist, which requires manual scoring and analysis and is very time-consuming. Assessments are often done point-in-time, with no reminders to re-engage and send out requests for updated information. As with anything extremely manual, the risk of human error to misjudge something or forget something could make for an expensive mistake.
With a more sophisticated breed of hackers, it’s important to automate workflows and risk scoring. Software solutions create a purpose-build vendor workflow, with off-the-shelf and customizable assessments. This also enables organizations to automate risk scoring and build recurring assessments.
Trend 3: Regulatory Scrutiny Continues to Grow
Regulatory requirements around third parties are increasing as regulators react to this evolving landscape. With growing regulatory pressure around supplier due diligence and data protection — including five new state data privacy laws coming into force in 2023 — organizations can no longer feel comfortable with a “business is usual” approach to third party risk management.
As regulatory needs go up, issue tracking rises in priority as a problem area. Whenever issues or follow-up items are identified, these interactions are typically handled manually, through emails back and forth with third parties and — again — spreadsheet trackers. Without an easy way to visualize and prioritize what’s most important, there is no holistic view of risk. When everything is tracked in a decentralized way, individuals don’t have visibility into the whole of the third-party risk program, and how it might impact other parts of the organization.
Increased regulations require a big-picture view of risk. Software can empower teams with a vendor issue management workflow, as automated reminders and follow-ups take time-consuming, manual, and error-prone workflows off of teams. Freed from these tedious tasks, teams can devote their valuable time and resources to TPRM activities that matter.
TPRM Solutions for Your Organization
These trends are leading executives and boards to be much more focused on wanting to know that their teams are effectively managing these third-party risks. Meanwhile, teams are trying to meet the exponential growth in third-party risk without the corresponding resource growth. The right software solution can improve workflows and resource management while reducing manual workloads and improving existing team efforts and efficiencies. To improve your organization’s TPRM workflows and management, learn more about AuditBoard’s vendor risk management solution.