The Importance of Third-Party Risk Management in a Difficult Economy

During challenging economic times, it is only natural that business leaders shift their focus towards cost-savings strategies, which often times can be short-sighted in nature and cause broad issues to the organization. These can include anything from budget cuts, hiring freezes, and even layoffs of employees and contractors.

When an organization is faced with smaller budgets and limited staff, certain business functions like third-party risk management (TPRM) can often get pushed to the side, or put on the “backburner,” in place of other activities that may have an immediate impact to an organization’s bottom line. 

However, the reality is that third-party risk management is an incredibly valuable function that deserves to be prioritized and invested in, even during an economic downturn. Without proper third-party risk management and investment in internal and external resources to manage a third-party risk management program, it exposes organizations to further financial risk and impact, potential loss in data, poor security practices, and exposure to fines, ransomware attacks, and legal issues.

This blog covers some reasons for why your organization should continue focusing on third-party risk management and some tips on how to maximize your limited resources.

6 Reasons to Continue Prioritizing Third-Party Risk Management in an Economic Downturn  

It is essential to continue prioritizing your third-party risk management program, whether it is fully operational and mature or still in the early stages of being built within your organization.

Here are just some of the reasons why your organization should focus on third-party risk management:   

1. It supports operational resilience. Many organizations are depending on third parties more than ever to support critical business activities. Third-party risk management helps ensure these critical third parties can continue servicing your organization during business-disrupting events like data breaches, natural disasters, and more. Reviewing a vendor’s business continuity and disaster recovery plans during due diligence is an essential step that will support your operational resilience. 
2. It meets regulatory expectations. When your organization is trying to endure an uncertain economy, the last thing you’ll want to deal with is the unnecessary stress from increased regulatory scrutiny. Prioritizing third-party risk management will help meet regulatory expectations and avoid the additional time and effort that comes from making improvements or updating your program.  
3. It identifies and manages evolving third-party risks. The same economic hardships that are impacting your organization are likely affecting many of your third-party vendors. As a result, this can expose your organization to third-party risks related to supply chain issues, cybersecurity vulnerabilities, and declining service levels. Third-party risk management activities like risk re-assessments and updated due diligence help identify and manage these risks to protect your organization and its customers. 
4. It helps avoid potential financial losses. Third-party risk management is often undervalued because of the assumption that it doesn’t improve the bottom line. However, third-party risk management is an important strategy in avoiding potential financial losses that come from a third party’s actions. 
   
   Here is an example: Consider the costs that can arise if your third party suffers a data breach that impacts your customers. Your organization could ultimately be responsible for legal fees and settlements, lost revenue from dissatisfied customers, and the costs of providing credit monitoring services. 
5. It protects your brand and reputation. Third parties that interact with your customers or represent your organization can have a significant influence on your brand and reputation. 
   
   Here is an example: Imagine that one of your third parties provides technical support for your customers. If this third party is failing to resolve your customers’ issues, this would reflect poorly on your organization. Third-party risk management practices like performance monitoring and issue management can help mitigate this risk and protect your reputation. 
6. It holds third-party vendors accountable. It is important for third parties to deliver on your expectations, provide value and revenue growth to your organization, or help your organization with creative solutions. Practices like performance and contract management help ensure service levels are met, product and service quality is as required, and your organization is receiving value. Poor third-party oversight can lead to lost dollars and upset customers. 

Maximizing Third-Party Risk Management Resources in an Economic Downturn 

Maybe your organization has a third-party risk management program in place but is struggling to adapt with a smaller team or limited budget. Your organization may have already experienced program cuts or even employee layoffs. In these situations, a good approach is to learn how to maximize your resources and create more efficiencies to do more with less. 

Here are some tips to get started:  

• Verify that your third-party risk management processes are criticality and risk based. Using a risk-based approach for your third-party risk management activities like due diligence, ongoing monitoring, and contract management will ensure your time and efforts are spent where they’re needed most – on critical and high-risk vendors. This helps create more efficiencies and keeps your program effective in managing third-party risks. 
• Identify tasks that can be automated. Many third-party risk management teams are bogged down with administrative tasks that are necessary, yet time-consuming, like tracking due diligence documents or following up with collaborators to review those documents. Automating these tasks with a dedicated third-party risk management tool like a software platform can save valuable time and enable your team to focus on other duties.  
• Engage with other third-party risk management professionals. There is a strong possibility that other third-party risk management professionals are facing similar challenges, so consider browsing online communities and asking for advice or best practices. You may discover that your peers can offer some practical solutions for using your resources to their full potential. Additionally, other professionals may be able to extend their services or capabilities in a cost-effective manner that can help you maintain a good risk management posture without having to dedicate much or any additional budget dollars.

Business priorities will inevitably shift during economic uncertainty, but third-party risk management should remain top of mind for your organization. This essential business practice will continue to support your operational resilience, help prevent financial loss, and protect your reputation, even if your resources are limited.