In the current era, business ecosystems are becoming progressively interdependent, and as a result, third party risk management (TPRM) systems have become paramount in corporate strategy. When a business outsources part of its processes to an external party, it undertakes several risks.

TPRM is associated with how organizations manage and mitigate risks posed by their vendors and suppliers. Third party risk exposure can be complicated to manage and comes with various challenges that business organizations must address for a successful TPRM program.

Let us explore 5 critical challenges of vendor risk management in this blog and how these can be tackled with the help of an AI-based platform.

Third Party Risk Management Industry Trends

Recent industry trends reveal that the challenges in third party risk management systems are multifaceted and evolving. These challenges are not limited to the direct risks posed by third party actions, such as data breaches or compliance failures, but also encompass the indirect risks associated with the increasingly complex supply chains and the dynamic regulatory landscape.

One of the critical insights from these studies is the heightened risk of data breaches through third-party channels. IBM’s analysis, for instance, reveals a concerning fact: 83% of the organizations that they surveyed experienced multiple data breaches due to third-party system integration. This is why third party risk management systems are crucial for identifying and mitigating threats. TPRM is also necessary for ensuring compliance with evolving data protection regulations.

Furthermore, the struggle is visible in many organizations that are still using outdated and manual risk management processes. In an age where real-time risk assessment is crucial, reliance on legacy methods like spreadsheets is a significant barrier. This gap underscores the need for automated, intelligent third-party risk management systems offering comprehensive risk visibility and agile response mechanisms.

5 Key Challenges of Third Party Risk Management Systems

The TPRM systems landscape is complex and challenging, with various factors contributing to the difficulties that organizations experience. Let us dive into the discussion of five critical challenges in managing third-party risks effectively.

1. Data Security and Privacy Concerns

The challenge of safeguarding data in a network of external partnerships is immense. Organizations must ensure that third parties adhere to the highest data security standards to prevent breaches that could lead to significant financial and reputational damage.

This involves regular audits, adherence to international data protection laws like GDPR, and implementing robust encryption and access control measures. An effective third party risk management system is crucial to continuously monitor these aspects and ensure compliance.

2. Inadequate Visibility and Control

Lack of visibility into third-party operations can leave organizations vulnerable to unforeseen risks. This includes ongoing monitoring of operational risks and financial instability of vendors or even geopolitical factors that could affect their supply chains.

A comprehensive 3rd party risk management should offer real-time monitoring capabilities, detailed analytics, and reporting tools to view all third-party interactions and their associated risks.

3. Compliance and Regulatory Challenges

Navigating the complex web of regulations across different geographic locations with distinct jurisdictions is a daunting task. Each jurisdiction may have separate rules regarding data privacy, labor laws, environmental regulations, etc.

An adaptable and up-to-date third party risk management system can support the management of such varying regulations to ensure that the organization, and its third parties, comply with all legal requirements, thereby avoiding hefty fines and legal implications.

4. Managing Complex Supply Chains

Modern supply chains are quite complex, often spread across multiple countries and involving numerous subcontractors. This complexity adds layers of risks for business organizations. It is crucial for a TPRM system to not only assess the direct risks posed by primary vendors but also to evaluate the risks presented by secondary and tertiary suppliers.

This requires a comprehensive third party risk management system capable of deep supply chain analysis and risk assessment at every level.

5. Reliance on Manual Processes

The persistence of manual processes in risk management is a significant barrier to efficiency and accuracy. Manual methods are time-consuming, prone to human error, and often need more agility to respond to rapidly evolving risks. Automating these processes through a sophisticated third party risk management program can streamline risk assessments, improve accuracy in risk identification, and enable quicker response to potential threats.

Confidently Manage Your Organization’s TPRM Risk with Best-in-class Third Party Risk and Compliance Management Solution.

After exploring the multifaceted challenges of third party risk management systems, it becomes clear that addressing these issues requires a sophisticated and comprehensive solution. Organizations need a system that identifies and assesses risks and provides actionable insights and compliance support. This is where a solution like Predict360 Third Party Risk and Compliance Management plays a powerful role.

To deal with these challenges, transitioning to an advanced, automated risk management solution is not just a luxury but a necessity. The right tool can transform the way organizations approach third-party risk, turning reactive measures into proactive strategies. Predict360 TPRM solution offers this transformative capability, integrating innovative technology into an organization’s third party risk management system with deep industry expertise to provide a solution that is both comprehensive and user-friendly. This platform is designed to streamline and enhance the effectiveness of your organization’s third party risk management framework and its major advantages are discussed below:

Planning and Risk Assessment

Predict360 TPRM enables organizations to organize and manage third parties in a risk register, allowing for an initial risk assessment through an enterprise risk management lens. Financial organizations must set up a program to establish a baseline understanding of the risks associated with each third party.

Due Diligence

The third-party risk and compliance management platform facilitates the request, evaluation, and storage of critical third party risk management system’s documents, such as SOC Reports. It utilizes advanced third-party risk intelligence software Argos, to assess various risk factors, including financial, cyber, ESG, and compliance risks, and securely stores evaluated documents for future reference.

Contract Management

TPRM solution streamlines the management of third-party documentation, contracts, and related tasks. It establishes a process for centralizing and tracking all third-party documentation and contracts, ensuring efficient and organized management of these critical documents.

Ongoing Monitoring

The solution manages ongoing risk assessments, compliance testing, and analysis of third-party risk trends. It enables organizations to schedule periodic risk audits and continuously track third party risk management system’s metrics, providing a dynamic and proactive approach to risk management. Also, this includes monitoring critical risk metrics for changes or new developments and conducting regular compliance testing, such as security assessments and policy reviews.

Termination Process

Predict360 third party risk management software offers configurable workflows for offboarding or transitioning third parties. This includes clear steps for notification, transitioning responsibilities, records handoff, and final exit procedures. This feature ensures a structured and compliant process for ending third-party relationships.

Conclusion

To wrap up the discussion regarding third party risk management system, this domain’s challenges are diverse and complex. Organizations face an intricate landscape of risks in their third-party relationships, as outlined below:

  • Data Security and Privacy
  • Visibility and Control.
  • Compliance and Regulatory Challenges
  • Complex Supply Chains
  • Manual/ Traditional Processes

However, these challenges also come with opportunities for growth, innovation, and enhanced operational resilience. As the business world evolves, so will the nature of third-party risks. Organizations must remain vigilant, adaptable, and proactive in their approach to risk management. Implementing a solution like Predict360’s third party risk management system can be a significant step towards achieving these goals, providing the necessary tools and insights to navigate the complexities of third-party risk management effectively.