According to a recent study by the Institute of Internal Auditors, more than 65 percent of organizations “rely heavily” on third parties, yet most allocate less than 20 percent of their internal resources for assessing third-party risk.
An institution’s board of directors and senior management are ultimately responsible for managing activities conducted through third-party relationships, and identifying and controlling the risks arising from such relationships, to the same extent as if the activity were handled within the institution.
Risk Associated with Technology Vendor Management:
Strategic risk. Strategic risk is the risk arising from adverse business decisions, or the failure to implement appropriate business decisions in a manner that is consistent with the institution’s strategic goals. The use of a third party to perform functions or to offer products or services that do not help the institution achieve corporate strategic goals and provide an adequate return on investment exposes strategic risk.
Reputation risk. Reputational risk is the risk arising from negative public opinion. Third-party relationships that result in dissatisfied customers, interactions not consistent with institution policies, inappropriate recommendations, security breaches resulting in the disclosure of customer information, and violations of law and regulation are all examples that could harm the reputation and standing of the financial institution in the community it serves.
Operational risk. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. Third-party relationships often integrate the internal processes of other organizations with the company’s processes and can increase the overall operational complexity.
Credit risk. Credit risk is the risk that a third party, or any other creditor necessary to the third party relationship, is unable to meet the terms of the contractual arrangements with the institution or to otherwise financially perform as agreed. The basic form of credit risk involves the financial condition of the third party itself.
LIMITLESS offers a fully managed solution to ensure you are “paying for what you are receiving”. Ensuring contract terms are met as well as compliance standards. Tracking any potential risks, optimizing your billing and managing all contract and agreements in one central software solution.
Outsourcing vendor management to a third party will also help standardize processes; and consistency helps enable the transparency essential to effective governance. This helps to alleviate flawed data, and costly mistakes. FROM FULL OUTSOURCING of complex functions like data processing or component manufacturing to small contracts with local service providers and suppliers, companies of all shapes and sizes rely heavily on third parties. The savings and operational efficiencies of using third parties are often readily apparent. But relying on them also means expanding your potential risks. Understanding and addressing these risks as part of a broader risk management approach is essential in order to minimize exposure to financial losses, regulatory noncompliance and reputational damage.
THE IMPACT OF THIRD-PARTY RISK ISN’T LIMITED TO the particular business function for which services have been contracted. In fact, the implications often extend throughout your entire organization, often with a snowball effect. For example, a network breach at a third-party service provider could result not only in loss of intellectual property, but loss of revenue, customers and reputation. What’s more, from the Office of the Inspector General to the Federal Trade Commission and the Consumer Finance Protection Bureau, regulators across the board have begun to focus on third-party risk. Organizations are increasingly expected to proactively identify and manage third-party risks and provide assurance that their service providers are compliant with a host of regulations. In addition, under provisions of U.S. Foreign Corrupt Practices Act (FCPA), U.S. corporations may even be held liable when they fail to prevent a wide range of crime, corruption and fraud from being committed by service providers operating in foreign countries.
Our software will not only house every contract, service agreement, warranty or renewal agreement, but we also manage negotiations for better rates and terms saving your business from unnecessary fees and costs while maintaining quality standards. If you have questions regarding how to manage vendor contracts/agreements or would like more information regarding our fully managed vendor management solution contact LIMITLESS at (866) 504-4050 or email us at firstname.lastname@example.org.