For many organizations, vendor risk is an afterthought, and at times even thought unnecessary. As long as status quo is maintained and operations are running smoothly, organizations do not have any focus on vendor risk or on what the third parties they work with are doing. If they do take vendor risk seriously, they might view it only in terms of the obvious: vendors/3rd party service providers going bankrupt or doing something criminal.
However Vendor Risk Practitioners differ in their approach. A thorough Practitioner understands that Third-party vendor risk management involves much beyond the obvious and can be extremely disastrous if taken casually or ignored. These risks can in fact result in financial and reputational damage to an organization. According to a practitioner’s approach, following are the key challenges arising as a result of third party risks that an organization must invest time and resources to examine in order to mitigate them and thereby reduce their exposure.
- Compliance issues
When a vendor doesn’t follow regulatory standards, its compliance problems become your compliance problems. For example, simply assuming a vendor operating in retail industry would be following PCI guidelines is not sufficient. Confirming and analyzing a vendor’s best practices in compliance, along with their related audit artifacts, should be ensured
- Data security Considerations
Keeping your organisation’s data secure is an obvious goal while assessing risk—so much so that organizations may automatically assume every vendor considers it a high priority. Unfortunately, that is not the case, and some vendors/3rd party service providers are shockingly lax when it comes to protecting valuable information.
With the rise of wireless and cloud computing and recent trends like Bring Your Own Device (BYOD), employees are able to easily access information—including your organization’s confidential data. Today checking emails using networks other than your organization’s is becoming more and more prevalent. Thus, vendors/3rd party service providers who have not implemented data security and privacy policies to keep key data secure outside the office pose a greater risk to your organization.
- Employee screening and data confidentiality
Ensuring data confidentiality within an organization typically depends a lot on employees. This applies to vendors/3rd party service providers as well. Do they thoroughly check the criminal background and work experience of their employees, as well as screen for drugs? You wouldn’t want someone listed on a sex offender registry to have access to your organization’s medical records, nor would you want someone with drug or alcohol problems working on component manufacturing which might cause it to fail spectacularly. Vendors/3rd party service providers that don’t thoroughly screen their employees add significant risk to their companies as well as to yours.
- Third parties outsourcing their work
Your vendors/3rd party service providers might be outsourcing their work as well. Are they taking the same approach to 3rd party risk management as your organization does? If not, your vendor’s vendor could expose your enterprise to unnecessary risk without you even knowing that you were indirectly employing that particular third party.
- Vendor/3rd party service provider reputation
A public relations mess caused by one of your vendors/3rd party service providers is the last thing your organization needs. Therefore, discovering any issues that might come back to hurt your brand is imperative. Is your vendor being sued for negligence, for mistreating its employees, or for breach of contract? Does it employ cheap labor overseas? Does it suffer from high employee turnover or negative reviews? A thorough assessment can reveal the baggage that vendors/3rd party service providers would be carrying to your organization.
- Financial Implication of Operational issues
A vendor/3rd party service provider doesn’t have to declare bankruptcy or shut operations to cause a disruption to its production and thus cause major headaches for your organization. For example, layoffs can leave a vendor short-handed and reduce the quality of its products. Of course, a third party’s business performance is not always constant, but how it plans and handles the tough times is important to its business and to yours.
The crux of the issue is that Vendor risk management is essential for the modern business of today, and every organization has to consciously embark on the journey of identifying the gaps that exists in their current vendor risk management program .In view of that, the aforesaid key points can be taken as starting point to initiate this journey.