Why You Need an ERM and Third-Party Risk Management Platform

Many business leaders have grown weary of managing large tech stacks and are satisfied when a single platform appears to serve two purposes. If your organization already uses an enterprise risk management (ERM) platform, you might assume that a separate third-party risk management (TPRM) platform isn’t necessary. Since ERM focuses on identifying and assessing an organization’s risks, shouldn’t TPRM fall under that same umbrella?

The truth is, TPRM is becoming far too complex and regulated for traditional ERM platforms to handle. Large vendor inventories create more risks to manage, and regulators are increasing their focus on this business area. An ERM platform looks at the big picture of an organization’s risk but will generally not have a full grasp on the complexities of managing third-party risks. A better strategy is to supplement your ERM platform with one that focuses solely on TPRM.

ERM Platform Strengths and Weaknesses

There are many types of risk to consider within an organization, such as strategic, financial, and operational. Enterprise risk management platforms are designed to address these risks, but it’s important to understand where their capabilities are limited. 

ERM Platform Strengths:

• Analyzes potential risks. These platforms can provide greater insight into all the potential risks that your organization may face. Business leaders can see year-over-year comparisons and trends, which enables better decision making. 
• Spectrum of assessment types. An ERM platform can usually help develop a wide range of risk assessment methodologies, from basic variations to highly customized and complex.
• Helps set the risk appetite. ERM leaders are generally focused on defining the organization’s risk appetite and implementing risk mitigation strategies. An ERM platform can give them a dedicated space needed to do this by assessing risks across the entire organization.

While ERM platforms can provide a lot of value in the general practice of risk management, they still contain some significant weaknesses surrounding third-party risk. 

ERM Platform Weaknesses:

• Ineffective document storage. ERM platforms are generally not designed to function as document repositories, systems of record, or as enterprise vendor management systems. Nor are they usually capable of handling the due diligence document requirements needed for TPRM.
• Limited security features. Most ERM platforms are only used by a small team and usually only require two-factor authentication instead of more robust security controls like multi-factor authentication. 
• Lacks important data. A vendor’s risk and performance can quickly change, which requires continuous monitoring of current data. However, ERM platforms will usually just offer a point-in-time data set, giving you a limited view of your third-party risk landscape.

TPRM Platform Strengths and Weaknesses

TPRM platforms essentially offer many of the missing pieces that are lacking from an ERM platform. A TPRM platform is an effective solution that will gather all your vendors into a single portfolio where they can be easily monitored and managed. A dedicated TPRM platform is designed to hold vast amounts of vendor due diligence and can notify users from different departments across your organization. 

TPRM Platform Strengths:

• Better alerts and notifications. Managing a large vendor inventory can be challenging, and it’s common for important dates like contract renewals or due diligence reviews to slip through the cracks. A TPRM platform can improve your contract management and due diligence processes by providing automated notifications and alerts. 
• More efficient tracking and storage. An effective TPRM platform can handle tracking and storing large amounts of data that’s inputted by various parties across your organization. A TPRM platform can also streamline methods for analyzing this information, which can simplify your processes for due diligence, risk assessments, and questionnaires. Plus, storing all this data in a centralized location can help prepare you for regulatory exams.
• Strong security methods to accommodate many platform users. TPRM platforms will typically support a larger number of users with multiple layers of security. It can also enable you to quickly lock the platform if you experience a cyber incident.  
• Insightful dashboards. Unlike ERM platforms which give a limited point-in-time view of risk, TPRM platforms offer a more comprehensive view of ongoing vendor activities and evolving risk. Users can also view dashboards dedicated to individual vendors, which gives valuable data on due diligence reviews and documentation, issue management, contract details, and more.
• Built to follow the lifecycle. TPRM platforms are designed to support activities of the lifecycle, from vendor onboarding to offboarding . Some organizations will neglect TPRM activities once the contract is signed, but it’s essential to manage risk at every stage to ensure that controls are in place and effective.

TPRM Platform Weaknesses:

• Required learning curve. Mastering TPRM platforms can present a challenge due to the learning curve associated with any new tool. As with any complex system, it requires some education to ensure optimal usage.
• Doesn’t assess enterprise-wide risks. TPRM platforms are dedicated solely to managing all of the risks that come with your organization’s third parties. Although that’s critical to manage, these platforms typically don’t look at your entire organizational risk. That’s why it’s crucial to use TPRM within your ERM program. 

With a bit of education and hands-on experience, you'll find that TPRM platforms offer crucial benefits by providing focused insights into third-party vendor risk and streamlining essential processes. These platforms pick up where ERM platforms fall short. 

How ERM and TPRM Should Work Together

Although we’ve described ERM and TPRM as needing separate platforms, remember that these two disciplines are interconnected. Third-party risk assessments should generally originate in the TPRM platform but flow up to the ERM platform through an application programming interface (API). This strategy can help enable the TPRM platform to perform well and allows the ERM platform to integrate vendor risk into the organization’s overall risk landscape.

It's not just about layering one platform on top of the other, but creating a cohesive, unified risk management strategy. When executed correctly, this can amplify the strengths of each system. Your organization’s TPRM platform can give you the specialized granular risk assessments you need for vendors, while the ERM platform can contextualize those third-party vendor risks within the larger organizational picture.

It's crucial to manage enterprise risk and third-party risk effectively. Although relying solely on an ERM platform may seem like a viable option, it can result in inefficiencies and overlook certain risks. Combining ERM and TPRM platforms can provide a better understanding of both internal and external risks that your organization may face.