Thinking Forward: Managing Third Party Risk for 2024 & Beyond

In the world of third-party risk management, companies have long been accustomed to doing things the old way, navigating through fragmented processes and siloed approaches. However, as we step into 2024, the landscape demands a transformative shift. It’s time for companies to break free from the constraints of traditional methodologies and embrace a new integrated approach to third-party risk management. Managing tomorrow’s surprises today requires a departure from the conventional, ushering in an era where forward-thinking strategy becomes paramount for success. 

Successful Third-Party Risk Programs Focus On:

1. Breaking Down Silos with an Integrated Approach

The traditional onboarding process often involves different departments within an organization engaging third parties independently. This siloed approach often leads to a lack of standardized procedures, fostering inefficiencies, duplicated efforts, and potential compliance gaps. Organizations benefit from taking an integrated approach to third-party risk management. This involves mapping out the connections between third parties and various departments within the organization. This holistic perspective aids in determining the broader impact of each third party, whether they should be tied to specific policies and controls across the organization. Taking an integrated approach ensures standardized procedures and a comprehensive understanding of each third party’s impact.

2. Being Proactive with a Forward-Facing Risk-Based Approach

Implementing a forward-facing strategy mitigates potential issues before they escalate. Without a risk-based approach, organizations might not adequately assess the potential impact of third-party-related risks. This leaves them vulnerable to unforeseen issues and compromises their ability to prioritize resources effectively. By analyzing the risk associated with each third party, companies can prioritize resources and apply appropriate due diligence based on the level of risk. This allows for tailored treatment and review processes aligned with the risk profile of each third party. 

3. Prioritizing Resource Management for High-Risk Relationships

Treating all third parties uniformly can be counterproductive. Low-risk third parties may receive the same level of scrutiny as high-risk ones, leading to wasted time and resources. Tailoring the onboarding process based on risk profiles allows for a more efficient allocation of resources. With a focus on risk assessment, organizations should allocate appropriate resources to thoroughly evaluate and monitor third parties that pose significant risks. This strategic allocation of resources ensures that potential issues are identified and addressed promptly, preventing unnecessary complications.

4. Proactive Risk Identification Instead of Reactive Issue Handling

Traditional approaches often result in organizations discovering third-party issues only after they’ve already occurred. Having a reactive stance to risk events exposes businesses to potential data breaches and reputational harm. Effective risk management is undermined by not taking a proactive approach. Anticipate and prevent potential problems before they escalate by utilizing risk assessments and continuous monitoring. This proactive strategy not only minimizes the impact of potential issues but also strengthens the overall risk management framework.

5. Creating Consistency and Improving Visibility

The absence of a centralized system for tracking third-party relationships makes it challenging to understand how third parties are being used and where they are integrated. This leads to increased security vulnerabilities and hinders effective third-party management. The new recommended approach involves establishing a standardized third-party onboarding process that works across the entire organization. By formalizing procedures, companies can evaluate third parties consistently, enabling fair and accurate comparisons among different relationships. 

6. Making Informed Decisions on Third-Party Spend

Operating in silos makes it difficult for businesses to connect information across departments resulting in poor business insights. Your third party program should be connected to your contract lifecycle, strategic objectives, controls, and more to make better decisions. Leveraging the integrated approach, organizations can make more informed decisions about third-party spend. By understanding the full spectrum of third-party connections and their alignment with organizational goals, businesses can allocate resources more effectively and make budgetary decisions that align with strategic priorities.

Adopt a Forward-Thinking, Risk-Based Approach to Third-Party Risk Management in 2024

As businesses forge ahead into 2024, the traditional siloed and reactive methods are no longer sufficient. The key recommendation is to adopt a forward-thinking, risk-based approach that not only anticipates potential threats but also strategically allocates resources based on the level of risk each third party poses. Prioritizing risk identification and tailored treatment of high-risk relationships, organizations can proactively mitigate potential threats and ensure the effective management of third-party risks. By embracing the new way, businesses not only mitigate risks but also foster efficiency, transparency, and informed decision-making in the ever-evolving landscape of third-party relationships.

LogicManager’s Third Party Risk Management Solution helps businesses to adopt a risk-based approach, empowering businesses to manage tomorrow’s surprises today and make informed decisions that align with their strategic priorities. Speak with one our risk experts to learn how LogicManager can improve your third-party risk management program.