How to automate third-party risk management in 5 steps

Third-party risk is ever-growing, causing more and more organizations to explore the potential to automate third-party risk management.

As the business landscape grows more complex and competitive, companies seek to outsource many non-core elements. But this complex landscape brings increasing risk — and the prevalence of third-party outsourcing, digitalization and complex supply chains only exacerbates the threats.

Third-Party Risk Is On the Rise

Against this background — and with organizations' increasing reliance on third-party vendors, the drive to automate third-party risk management becomes increasingly pressing. Regulations such as the German Supply Chain Act and the EU Corporate Sustainability Due Diligence Directive only compound this need.

To mitigate the risk of fines and reputational damage, you must be aware of the growing list of third-party vulnerabilities:

Supply chain challenges; a global supply chain can make your ability to deliver less reliable, especially in times of crisis

Potential exposure to human rights abuses, including issues like modern slavery

Risk of association with poor environmental, social or governance (ESG) practices via your third- and fourth-party suppliers

What Is a Third-Party Risk Assessment?

A third-party risk assessment is the term given to the due diligence you do to assess the risk a third party might pose to your organization. It looks at the third party’s processes and governance and enables you to build a comprehensive picture of the risk they may carry.

But complex supply chains can make clear visibility across your value chain difficult and third-party risk assessments challenging. The number of suppliers most companies have (some global organizations work with hundreds of thousands) makes the work needed to continually assess third-party risk almost impossible to realize.

Increasing numbers of businesses are looking at third-party risk assessment automation to make risk management simpler, faster and more effective.

Why You Need To Automate Third-Party Risk Assessments

What is automation in risk management, and why does it matter? Why should you automate third-party risk assessment? There are a number of compelling reasons:

1. It makes the workload manageable. Third-party risk automation frees teams’ time from manual due diligence, enabling them to focus on preventing threats, not reacting to them.
2. As a result, it’s easier for your team to focus on the more strategic elements of risk, identifying and concentrating on the most pressing priorities.
3. A more efficient vendor onboarding process. Onboarding checks are an essential step in the third-party risk management lifecycle. If you automate third-party risk management, you remove the wait for manual due diligence checks.
4. Third-party risk management overall is far faster. Identifying and prioritizing risks is one of the biggest challenges facing risk managers; software can significantly speed this up.
5. Your vendor risk assessment is more objective, data-driven and rigorous as you remove subjectivity and the potential for human error.
6. Fast and accurate risk identification and assessment mean less downtime, saving you money.
7. Automating third-party risk gives you a quick snapshot of your whole supply chain. Fourth parties are firmly in scope when regulators are developing new supply chain risk management regulations — you need visibility of your entire supply chain.

Automate Third-Party Risk in 5 Steps

It’s clear that automated controls can make third-party risk management quicker, cheaper and more robust.

If you want to go ahead with third-party risk management automation, what steps should you take?

1. Set out your requirements: Identify your must-haves and nice-to-haves to come up with a list of criteria for your automation tool.
2. Identify potential third-party risk management tools: Which ones will deliver what you need? Not all automated risk assessment tools are created equal; a critical review is essential.
3. Create a shortlist of the best solutions: These solutions should satisfy most of the requirements you created in step one.
4. Explore each more deeply: Vendors should be happy to offer you a demo and answer any questions about their solution's suitability for your needs.
5. Streamline your shortlist and choose the best solution to automate your third-party risk.

Characteristics of the Best Third-Party Risk Management Tools

If you are looking to automate third-party risk management, there are some common characteristics that the best third-party risk management automation tools share:

• A unified platform that brings all elements of third-party risk management together
• A centralized library of vendors, enabling swift onboarding and vendor risk management
• Easy integration with your existing systems and external providers, reducing manual work and administration
• User-friendly matrices, dashboards and data presentation, making it easy to identify and prioritize risks
• A scalable approach that grows with your business and flexes with the threats you face 
• Rigor throughout the entire process, delivering improved compliance

Look out for these in the third-party risk automation solutions you shortlist.

A Comprehensive Approach to Managing Vendor and Partner Risk

Do you want to enjoy the benefits of automating third-party risk management; efficiently assessing, monitoring and mitigating the risks your third-party relationships pose? If so, Diligent’s third-party risk software can provide the solution you need. Find out more about how Diligent Third-Party Risk Management can help.