Business ecosystems are becoming progressively interdependent, and as a result, third-party risk management (TPRM) systems have become paramount in corporate strategy. However, 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. Read on to understand more about the critical challenges of vendor risk management and how these can be tackled with the help of an AI-based platform.

Teams are finding solutions to some of the key challenges affecting third-party risk management systems.

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. According to IBM, 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, integrated into Predict360, are crucial for identifying and mitigating threats.

Furthermore, many organizations are still using outdated and manual risk management processes, as opposed to automated risk management. 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

Addressing issues associated with third-party risk requires a sophisticated and comprehensive solution. Organizations need a system that identifies and assesses risks and provides actionable insights and compliance support.

Predict360’s TPRM solution integrates innovative technology into your organization’s third-party risk management system. Paired with industry expertise, the platform provides a solution that is both comprehensive and user-friendly.

Streamline and enhance the effectiveness of your organization’s third-party risk management framework in the following ways:

Planning and Risk Assessment Organize and manage third parties in a risk register, allowing for an initial risk assessment through an enterprise risk management lens.
Due Diligence Utilizes advanced third-party risk intelligence software to assess various risk factors, including financial, cyber, ESG, and compliance risks.
Contract Management Establishes a process for centralizing and tracking all third-party documentation and contracts.
Ongoing Monitoring Manages ongoing risk assessments, compliance testing, and analysis of third-party risk trends, enabling organizations to schedule periodic risk audits.
Termination Process Offers configurable workflows for offboarding, including steps for notification, transitioning responsibilities, records handoff, and final exit procedures.

Organizations face an intricate landscape of risks in their third-party relationships, such as:

  • 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. Implementing a solution like Predict360’s third party risk management system provides the necessary tools and insights to navigate the complexities of third-party risk management effectively.