In today’s business world, effective and efficient risk management is considered a major factor in the overall success of organizations. Businesses are investing heavily in third-party risk management programs to better identify and manage risks before these can affect their operations. The ability to manage risks enable companies and their decision-makers to act on future business decisions.
However, not all companies employ third party risk management specialists. The reasons may vary from organizational size to budgetary issues. Instead of employing full-time third-party risk management specialists, many firms choose to outsource their risk management functions to third parties.
Engaging the services of third-party risk management certifications firm is not as simple as it appears. There are many factors that can come into play in choosing a third-party risk management certification provider. This post will look at how a company looking to outsource risk management functions can select the best third-party risks.
Third-party risk providers on high demand.
Many businesses around the world are becoming more reliant on third-party risk management providers. There are numerous reasons contributing to this rising trend.
The increased focus of firms on complying with different regulations has resulted in a shortage of talent and skills in third-party risk management. Many companies struggle to fill posts in their risk management teams. By bringing in external help such as certified third-party risk management solution providers, a business can quickly plug any gaps in personnel requirements. Moreover, there is no longer a need to tap employees who may lack the key skills in third-party risk management.
Apart from relieving pressure on internal employees, outsourcing third-party risk management can help firms save money as the specialists are not entitled to employee benefits. Also, risk management functions are carried out far better due to clear operational focus and economies of scale.
Despite the perceived advantages of working with a third-party risk management firm, outsourcing this critical business function remains a critical decision that requires careful consideration and planning.
The need to be cautious in choosing a third-party risk management certification provider is further highlighted by the risks that come in outsourcing this business function.
RELATED: Third Party Risk Management Best Practices
In a recent survey by respected research entity Ponemon Institute involving more than a thousand chief information security officers (CISOs) and risk professionals in the United States and the United Kingdom, it was revealed that 59% of the companies of the surveyed participants have experienced data breach caused by third parties. The percentage is higher in the US at 61% or a 12% increase since 2016. Moreover, more than 75% of the surveyed participants said that third-party cybersecurity incidents are on the rise.
Assess your Third Party Risk Management
These pitfalls of working with a third party risk management solution provider underline the need for companies to carefully choose a trustworthy third-party vendor. Below are some tips in selecting the best third-party risk management certification provider:
Before even approaching a potential third-party risk management vendor, companies should first identify the objectives of outsourcing risk management functions. Objectives may differ from one business to another. For some firms, the main objective is to comply with governance and regulatory requirements. Other objectives may include:
- To benefit from a higher level of risk management expertise
- Minimize overloading other departments and enable them to concentrate better on their core activities
- To gain more flexibility of services as third-party risk management firms will only be tapped on an as-needed basis
- To gain objective risk management that is free from conflict of interest
When considering to tap a third-party risk management certification provider, a company’s board and senior management should ensure that the outsourcing of the said function is consistent with the strategic plans of the institution and evaluate proposals against specific criteria.
Identify vulnerable data and risks
Companies, regardless of the industry they belong to, have many types of vulnerable data. The HR department, for instance, manages confidential employee data. Other data that modern organizations have and need to protect include intellectual property, personally identifiable information, payment card industry transactions, and protected health information.
Aside from identifying critical information that companies hold or have access to, it is equally important to identify possible risks that an organization may face when outsourcing risk management functions. Below are some examples:
- Computer virus
- Malware, spyware, and ransomware
- Process risk
- Political risks
- Contract risks
- Undesirable/unforeseen events
- Information system failures
- Legal and regulatory non-compliance
Identification of vulnerable data that a company has access to and the risks that it can face in outsourcing risk management will impact its selection of a third-party risk management certification provider. More specifically, identifying vulnerable and potential risks that may affect the business operations will enable the decision makers to develop and implement controls governing third-party relationships for mitigating risks.
Conducting Due Diligence
The conduct of due diligence is an integral part of the screening and selecting process for a third-party risk management provider. Since the third-party will perform a critical activity in risk management, extensive due diligence is warranted.
Businesses should perform an in-depth assessment of a third-party risk management vendor’s ability to undertake critical activities while complying with pertinent regulatory guidelines prior to entering a contract.
Due diligence should be used by a company as part of the validation and verification process to confirm that a third-party risk management vendor meets the firm’s needs.
There are many factors to be inspected in conducting due diligence. A firm can start by asking for the necessary licenses and audits from the third-party. Other considerations are as follows:
- The financial condition of the third-party risk management vendor which can be determined by reviewing audited financial statements. This is important as any business would want to partner with a vendor in good financial health and which can offer uninterrupted service.
- Experience. The third-party should have a history of satisfactorily providing third-party risk management services and delivering within a prescribed period, and with the level of expertise required by its clients.
- Types of certifications or audits that the provider has achieved. Depending on the industry that the company is in, the third party risk management solution providers may be required to achieve certain certifications or audits. Financial firms such as banks, for instance, require their partners to have passed PCI compliance. Health care providers, on the other hand, require partners to have SSAE 16 or SSAE 18 certifications.
Assess and Manage Risks
Vital to the selection of a third-party risk management provider is identifying third-party risks like contract risks, process risks, political risks, system failures, and legal non-compliance risks.
Any third-party relationship will bring a number of risks that have to be identified, assessed, and managed. These risks are multi-dimensional, extending across vendors, contractors, and suppliers and potentially affecting different levels of an organization.
A firm looking to tap the services of a third-party risk management certification provider should also establish and approve appropriate risk-assessments to govern third-party vendors. These should be regularly updated and consistent with the firm’s vendor risk management program. Moreover, there should be policies in place to recognize the risks that the firm is exposed to due to its outsourcing activities.
One common practice among companies is relying on a single third-party risk management vendor for most of their products and services. While this can be advantageous particularly in terms of operational and financial gains, this can also be risky especially if the third-party vendor is also outsourcing its responsibilities to another party.
Prior to determining the questions in the survey, organizations should also consider how their vendors will interact with their data. This would enable them to evaluate potential privacy risks that may arise upon the start of a business relationship with a third-party.
The use of third-party questions as part of due diligence can provide a firm valuable insight into the security measures and policies of a potential vendor. In creating questionnaires and checklists, a firm may organize the checklist into predefined hierarchies in order for sections to be assigned to multiple vendors. The use of checklists and questionnaires may also come in handy during a full vendor audit. After receiving and reviewing questionnaire responses, a firm may request additional information if the need arises.
Other factors to consider
Companies looking for a third-party risk management provider should also consider the following factors such as:
This will always be a major factor in choosing the best third-party risk management certification provider. Many companies would want to get the best value for their money that management may decide on trying free risk assessment software. But if the firm does not have the IT staff that can handle it, then it would not be able to analyze its risks in the first place. Moreover, free software usually takes a while to complete which can prove to be counterproductive. It is recommended that a firm considering free risk assessment software weigh the cost in man-hours spent versus the potential cost of a data breach.
Range of services
With the wide array of cybersecurity solutions available today, a firm shopping for third-party risk management vendor may be overwhelmed. Some third-party risk management vendors may offer more services than what a firm needs, and as a result, affecting the cost. Other providers may not offer as many functions and services and consequently, charge less.
For nearly a decade, the use of vendor security ratings in selecting third-party risk management certification provider has helped companies choose the best partner for their risk management needs. Security rating system analyzes the risks that a prospective third-party pose to a company and then generates a security rating that’s easy to understand. Rating systems provide clarity on the security performance of third-party risk management providers. It allows organizations to assess the security capabilities of a third-party without prior engagement.
Selection and Monitoring
Businesses should be careful in choosing a third-party risk management provider given the important role and function that the latter would play, as well as the different risks that the vendor can bring. Careful consideration of the above-mentioned factors as well as the adherence to the selection process will enable firms to select the best third-party risk management vendor.
And even after a third-party risk management certification provider has been selected and the contract finalized and executed, it would still be in the best interest of an organization to develop and implement ongoing monitoring process to assess the vendor’s compliance with requirements.
Outsourcing third-party risk management function may deliver benefits and good results to an organization especially if it doesn’t have the human resources for this task. Third-party risk management can benefit an organization not only in terms of costs but also reduced man-hours. Moreover, this specialized service can turn out to be less expensive than developing and managing internal risk management plans.
Despite those advantages or benefits, outsourcing third party risk management functions remain a critical decision that entails careful consideration and planning on the part of any organization. Disclosing confidential information to a third-party risk management vendor is one risk that some decision-makers may feel uncomfortable with.
That’s why it is critical to partner with a reputable third-party risk management provider such as RSI Security. One of the country’s leading cybersecurity and compliance providers, RSI Security provides third-party risk assessment as well as protection services. The company has worked with some of the top companies, institutions, and government agencies in ensuring compliance with applicable regulations, mitigating risks, and protecting the integrity of their data.