Identifying Vendor Risks
Now, more than ever, organizations are outsourcing their operations, suppliers, software and much more to save budget, time, or to gain an edge on their competitors. As organizations take on more and more third-parties, the opportunity for risks to severely disrupt the business multiply, and so vendor risk management is becoming more of a priority. Accompanying the many benefits associated with outsourcing, it also introduces more responsibility to the organization to monitor their vendors and third-parties to ensure that everything is in order and that a disruption to a vendor can be kept at bay and dealt with in a timely manner.
To understand what tools and strategies we need to effectively manage our vendors and vendor relationships, it’s important to understand some of the most common risks associated with them.
Common types of vendor/third-party risks
- Cybersecurity risk
Your third-party vendors are susceptible to cybersecurity attacks and hackers just as much as anybody. If they suffer a significant cybersecurity incident, it has the potential to affect your organization. This is why it’s important to monitor your third-parties closely and have a plan in place in case a breach or disruption to your vendor’s operations affects your own organization’s operations, revenue or reputation.
- Compliance/legal/regulatory risk
Compliance risk is the prospect that a third-party vendor could impact your compliance with legal or regulatory requirements. If one of your vendors fails to comply with a regulation or neglects to keep up with changing requirements, your organization can still be found liable. It’s important to remember that while you can outsource your operations, you are still on the hook for any liability.
- Reputational/financial risk
Vendors may cause financial or reputational risk to your organization if they provide a faulty component or fail to meet deadlines that you have set. When you’re on a tight schedule, it’s important to make sure that you hold your vendors accountable to make sure they deliver products and/or services on time.
It’s also been widely seen throughout the pandemic and from the Suez canal incident that supply chain delays that affect manufacturers and distributors have a much larger reputational impact on their well-known retailers. Those retailers were on the receiving end of delays and shortages, and then had an additional hit to their bottom line.
- Operational risk
Anything that disrupts operations for your vendors could subsequently disrupt operations for your organization. For example, if your organization’s website or online services are hosted with a third-party and that third-party’s server goes down, your organization has to have a back-up plan so you can get back up and running without significant disruption to your own operations. It is critical that organizations have a program in place to anticipate potential operational disruptions and have a plan to respond to and remediate risks quickly and effectively.
According to a 2016 study into third-party governance and risk management (GRM), it was discovered that:
- 87% of respondents have faced a disruptive incident with vendors in the last 2-3 years,
- 28% faced major disruption; and,
- 11% experienced a complete third-party failure.
Take control of your third-party and vendor risk management today. Icebergs’ team of experienced management consultants, subject matter experts, software developers, and solutions architects offer a full lifecycle of IRM related professional services including executive management workshops, strategy sessions, implementation & integration, and support services.