4 Benefits of Outsourcing Third-Party Risk Management

Organizations outsource certain business functions for a variety of reasons. Maybe there’s a need for external expertise and cost efficiency, or simply a desire to outsource time-consuming tasks and better allocate internal resources. These same benefits can also be achieved when outsourcing third-party risk management (TPRM).

Many TPRM teams struggle to manage workloads because of large vendor inventories and increased regulatory scrutiny, so outsourcing certain third-party risk management activities can be an effective strategy to reduce this burden, while also strengthening and improving programs. In this blog, we’ll cover what it means to outsource third-party risk management and the benefits of outsourcing this essential business function.

What Does Outsourcing Third-Party Risk Management Mean? 

Outsourcing third-party risk management is partnering with professionals and experts that can help your organization manage its third-party relationships throughout the lifecycle, from onboarding to offboarding. This can include outsourcing key TPRM activities like collecting and reviewing third-party due diligence, generating reports on third-party risk and performance, and supporting continuous third-party monitoring. While some activities are outsourced to various subject matter experts (SMEs) and TPRM professionals, others can be performed within a dedicated third-party risk management platform.

Although outsourcing these tasks and activities can save time and optimize your program’s resources, remember that you can’t fully outsource the risk a third party poses to your organization. A third-party risk management platform can help support and guide your program in the right direction, but your organization is ultimately responsible for owning and managing the risk that exists within your third-party relationships. This responsibility can be even more challenging for smaller TPRM teams and programs that often lack enough internal resources.

3 Third-Party Risk Management Activities That Require Internal Resources  

Although it might seem practical to outsource your entire third-party risk management program, this can lead to some negative consequences. Too much reliance on an outsourcing solution can limit your understanding of your risk landscape and create the misconception that managing vendor risk is “out of sight, out of mind.” Outsourcing every TPRM activity can also hinder your strategic goals if priorities are miscommunicated or misunderstood between your organization and your TPRM provider.

A better approach is to understand when to use your internal resources to perform some TPRM activities in-house. This can help your organization maintain awareness of new and evolving risks, while also prioritizing your strategic goals. 

The following activities are most effective when they’re supported by internal resources:     

1. Negotiating third-party contracts – Internal individuals, such as vendor owners or managers, third-party risk management teams, procurement, and information security, are going to be the most equipped to negotiate third-party contracts. These individuals understand your organization’s needs best and should always be involved in third-party contract negotiations. 
2. Managing third-party performance and relationships – Developing and maintaining relationships with your third-party vendors requires time and effort from your organization. Managing your third party’s performance internally helps your organization and customers receive the expected value of the third-party relationship. Building these relationships is most effective when it involves internal staff who interact with the third party on a day-to-day basis.
3. Reporting to the board and senior management – Some third-party risk management platforms offer a reporting functionality with customized templates and automation. While these are great tools to use, internal resources are still needed to interpret the data and present it in a way that enables better decision-making throughout the organization. Whether these reports focus on the effectiveness of the TPRM program, critical third parties, or open issues, organizations should determine the most relevant data that informs stakeholders and/or drives action. 

Capitalizing on Outsourcing Third-Party Risk Management 

Third-party risk management requires an ongoing commitment to improvement, even during economic challenges. Outsourcing third-party risk management can be a cost-effective solution that supports your program as it grows and matures with changing needs and regulatory expectations.

Here are 4 benefits of outsourcing third-party risk management: 

1. Meet industry standards and regulations. Regulators are continuing to increase their focus on TPRM, and it can be challenging to ensure your program is compliant with current expectations. Outsourcing key activities to TPRM professionals who understand the regulatory landscape can provide assurance that your program is aligning with these standards and expectations. 
   
   TPRM activities like risk assessments and due diligence often require specific expertise in numerous areas and disciplines, such as:
   
   • Financial reports 
   • SOC reports 
   • Compliance and regulations (which vary by industry, region, and country)
   • Business continuity and disaster recovery
   • Cybersecurity
2. Centralize the data on your third parties. It’s no longer sufficient to manage hundreds, perhaps thousands, of third parties using Excel or a similar non-automated tool. This often creates unnecessary, time-consuming labor and is also more prone to human error. Outsourcing third-party risk management can offer a centralized place to store third-party contracts and due diligence documentation, ensuring your organization doesn’t have to chase down the information from different stakeholders and across multiple spreadsheets. 
   
   Outsourcing third-party risk management activities to a software platform can provide features such as: 
   
   • Automated workflows for due diligence and monitoring tasks
   • Notifications for key dates, such as contract renewals  
   • Comprehensive reports for exams and the board
   • Customized templates for questionnaires and risk assessments
   • Configurations for oversight requirements 
3. Speed up strategic maturation. One of the best ways to mature your third-party risk management program is through a combined application of strategic practices. When considering outsourcing, many organizations will identify areas of improvement, such as inconsistent processes or roadblocks in workflows. Oversight activities such as ongoing monitoring, issue management, and service level agreement (SLA) tracking can all be optimized through outsourcing, which helps build a more mature program. 
4. Manage the entire lifecycle. The third-party risk management lifecycle is a widely accepted system of interconnected activities, which has been shaped by regulatory expectations and industry experts. Outsourcing third-party risk management to a software platform can help ensure your program is addressing all stages of the lifecycle, from onboarding, ongoing, and offboarding. TPRM platforms are generally designed to guide an organization through each lifecycle stage and may bring awareness to any gaps that exist within your current program. 

The benefits of outsourcing third-party risk management will be unique for every organization. Some TPRM programs are already mature and may see the greatest benefits in creating more efficiencies. Other programs may be less mature and have significant gaps they need to fill. Regardless of your outsourcing needs, remember that certain activities should always include internal resources, so your needs and goals are addressed.