Seven Benefits of Third-Party Vendor Risk Management for Higher Education Institutions

What Is Third-Party Vendor Risk Management?

All companies providing products or services to your institution expose the institution to risk. So, effective third-party vendor risk management, or third-party risk management (TPRM), is a necessary practice to protect your institution and its stakeholders. Third-party risk management is the practice of identifying, assessing, and managing the risks associated with outsourcing products and services to third-party vendors. 

Suppose your institution has contract management and procurement software, and the IT department manages computer-based vendor vetting and risk assessments. Isn't that enough? It depends on how the systems and departments are involved in the selection and management of vendors. In many institutions, departmental silos prevent information and work products from being shared, leaving critical gaps and weaknesses in the TPRM process. Without comprehensive and effective TPRM, your institution is at risk for cybersecurity issues and events, high costs or lost revenue, compliance violations, and direct impacts to your institution’s name and brand. 

The Benefits of Third-Party Vendor Risk Management 

Institutions that implement and adhere to comprehensive third-party risk management processes and procedures not only protect the institution, but realize other benefits as well. 

Let's explore seven key benefits of third-party vendor risk management: 

1. Identification of Vendor Risk 
   TPRM will help you identify and assess the risks inherent in the product or service and the vendor relationship. Inherent risk refers to the risks naturally associated with products or services. These risks are measured before any mitigating controls are considered. Common inherent risks include:
   
   
   • Strategic risks which arise when vendors make business decisions that don't align with the institution's strategic goals.
   • Reputational risks which occur when vendors provide poor service or their actions are inconsistent with the institution's values and standards.

1. • Cyber risks which arise due to insufficient or missing data security practices that can result in data breaches and other information security vulnerabilities. Cyber risk is also closely tied with operational risk, especially with the dependence on technology.
   • Compliance risk which is present when the vendor lacks compliance knowledge or doesn’t have adequate control systems in place.
   • Operational risks which have two types: internal and external. Internal operational risk refers to the vendor's ineffective processes, people, controls, and systems. The external operational risk comes from outside events like epidemics, natural disasters, severe weather, or cyberattacks.
     
     Once you have identified the types and amounts of inherent risk present, you can assign a risk rating or level to the engagement. These ratings are typically on a scale of low, moderate, or high risk. Rating the vendors in this way will help you know where to focus your risk management efforts and provide a comprehensive picture of the real risk in your institution's vendor portfolio.
2. Process Improvements for Vendor Acquisition
   TPRM supports your institution's processes and criteria for issuing Requests for Information (RFIs) and Requests for Proposals (RFPs). By producing a vendor risk matrix, your organization can select new vendors based on a more comprehensive set of criteria. While it's impossible to eliminate all vendor risks, your institution will be better positioned to define its risk tolerance once the risks are identified and understood. This information can also enhance the institution's strategic goals, compliance education and controls, operational capacity, business policies, pricing, service, and quality requirements.
3. Better Contract Management
   Your institution can use TPRM to aid in the development of contract standards and to define all non-negotiable terms protecting the institution. These terms may include required compliance controls, vendor performance management, mandatory audits and assessments, business continuity, and termination conditions.
4. Increased Purchasing Power
   Standard policies and systems will enable the institution to consolidate purchasing through the evaluation and management of vendors. For example, you may discover that different departments within the same institution have multiple contracts with a single vendor, often at different prices and terms. Consolidating purchases with a reduced vendor base can help you lower your prices. As opposed to outsourcing with multiple vendors, you will award a higher volume of business to a select few suppliers with acceptable risk levels and a reputation for providing excellent service.
5. Improved quality
   Contracts that include quality and performance standards and require mandatory audits incent the vendor to meet the terms of the agreement. Contracts designed to manage risk leave no questions regarding the required product or service quality. 
6. Better Vendor Relationships
   Building healthy vendor relationships begins with setting expectations at the beginning of every relationship, and holding the vendor accountable through risk and performance management will help incentivize the vendors to meet performance standards.
7. Transparency and Audit Readiness
   Transparency in outsourcing can be improved by using TPRM principles to standardize policies, procedures, RFPs, and contracts. If all vendor documents, including contracts, are collected and stored in one TPRM system, duplicate billing, outdated contracts, missed contract renewal dates, and other vendor-related issues can be reduced or eliminated. A single document repository system facilitates easier document collection and record retrieval for audits or examinations.