Whether you’re a small office, home office or large enterprise, selecting a third-party risk management system for your business is essential in today’s market.
Regardless of size, most businesses need to rely on third-party vendors to maintain competitive advantage, decrease costs, and improve profitability.
Each of these vendor solutions will introduce additional risk to your organization and it is imperative to monitor those risks. You can achieve this with a comprehensive third-party risk management strategy.
After all, you cannot afford to pay penalties or damage to your reputation caused by gaps or vulnerabilities in your vendor management that led to security violations or breaches, improper compliance, or data theft.
All these things can cripple your business and ruin your reputation to the point of no return. As an example, a recent IBM report states that the average total cost of a data breach was $3.86 million in 2020! Thankfully, you can do something about it.
What Are Third Party Vendors?
Before we get into deciding on how third-party vendor risk management is right for your business, we must examine what a third-party vendor is.
Simply put, a third-party vendor is an external person or company that offers a business service. These services are typically contract-based. They involve services such as supply chain management, sales resourcing, cloud and data offering, network security services, and much more.
A third-party vendor can supplement or complement your business by outsourcing the resources and capabilities your business may not have in-house. These vendors can provide a cost-effective way to maintain and grow your business efficiently until you develop those services by hiring the right people to operate within.
Whether you have multiple third-party vendors or a single vendor providing multiple services, you should consider how to manage those vendors and services.
Third-Party Vendor Risk Management Strategy
By now you may be asking yourself how do you manage third-party vendors and the risks they introduce to your organization? After understanding what a third-party vendor is, you should develop a vendor risk management strategy.
A well-designed vendor management strategy results in a win-win for you and your vendor(s). Vendor management solutions involve multiple considerations. But vendor management does not mean going to the negotiating table with your vendors to have them battle it out for the best price or service.
Vendor management is a two-way process of discussion that leads to a mutually beneficial agreement for both sides.
First, you should communicate information and priorities regularly with your providers. You could establish a regular phone or video call to check in, provide updates, and gather information on both sides.
Perhaps the vendor has some new features or offers that could help your business in ways you had not thought of. Regular communication is good for both parties involved as it sets priorities.
The goal of frequent communication should be to monitor vendor performance to see how they are keeping your business on track.
Another important aspect to consider for your vendor management strategy is to involve your vendors in key business strategies. Your business plans may involve expanding to another city or adding a new function, service, or capability.
You will want your third-party vendors involved in these strategy meetings so they can develop ways to help you achieve your vision. Your third-party vendors were hired as experts in their area and are the perfect resource to provide services to build your competitive advantage.
Understand and Align With Your Vendor’s Goals
You and your vendors are both in a business with the goal to be successful. By understanding your vendor’s goals and values, you are helping each other out.
If you constantly engage in efforts to press your vendor to cut costs to your business, you are taking steps toward them cutting you loose as a client.
You can’t succeed if they can’t! Get to know the business model and profit margin goals of your vendor to gain an understanding of their side to help build and improve upon your relationship with them.
After you understand your vendor’s goals, you can include negotiations to help both sides come to a beneficial agreement. For example, you could negotiate a package deal for additional services at a fair price.
Identify Business Functions That Must Remain In-House
Prior to negotiating with vendors, keep a tight hold on the functions you cannot afford nor plan to outsource. Consider what you can keep and what you can outsource.
These limitations will help refine resources, talent, and commitment to your clients. If you own a financial firm, it might not make business sense to hire external accounting services unless those services are internal facing only to your business.
In this case it may make business sense to find a consulting service provider to compliment a financial firm.
When considering efficiency, consolidation makes perfect business sense. Consider taking multiple third-party vendors or a single vendor offering multiple services into a single software solution.
You should streamline and eliminate disjointed or complex systems in a way that is efficient and timesaving for your business.
You can achieve this through a comprehensive third party risk management platform. Look for one that incorporates features that quickly alert you to, and then fix, any issues as they arise.
Monitor and Maintain Security Compliance
During collaboration and negotiation with third-party vendors, remember to keep security at the front of your mind. Security breaches find their way into the largest of companies.
For example, one of Walmart’s vendors exposed the data of 1.3 million customers in 2018.
You should consider investing in a third-party risk management platform that provides security protection, monitoring, and peace of mind in knowing internal and external cyber risks are monitored. This will ensure a secure behind-the-scenes layer of protection for your business.