A third party risk assessment or is also known as the vendor risk assessments. These are implemented to gauge the risks between partnerships.
These partnerships are the possible service or product providers to your business. Moreover, these assessments aren’t only for the potential third party vendors. But is also designed for the existing ones.
Also, these assessments will lay all the possible risks you may have in partnership. Risks are inevitable in business. Thus having these risk assessments is a must. And this should further influence how you make decisions. Moreover, being aware of the potential risks must allow you to effectively mitigate them.
What Do You Mean By A Third Party?
A third party means an outsourced entity or company. This partnership is validated through written contracts. You and this third party vendor shall exchange services in return. It could be you providing the service or the products. Or it could be otherwise, that is you receiving their services or products.
Engaging with a third party vendor is a must in business. You can not run a business without other’s business, can you? Thus, engagement is a must. And so the risks are inevitable.
The amount or level of risk it employs much depends on the kind of partnership or services you both share.
To explain further, the following are examples of a third-party vendor.
- Consultants or advisors
- The marketing companies
- Telephone Companies
- Internet Service providers
- Delivery Services
- Or any service provider your company needs
Why Does My Business Need The Assessment?
Aside from the mentioned above, there is more to risk assessments. First of all, it is a must in business practices. Everyone is responsible for the safety of their own business.
But let us show you more solid reasons.
A Requirement You Should Adhere To
One basic reason is that regulators urge businesses to. They want you to recognize the risk it imposes to share businesses. To help you with it, there is guidance available. Check out FDIC FIL 44-2008 and OCC Bulletin 2013-29.
On the other hand, we have a common misconception here though. It should be clear that risk assessments should be done. Not on vendors alone, but also with the individual product or service they offer.
For instance, you are connecting with Vendor 1. Vendor 1 offers two services to your company. Then, an assessment should be done with Vendor 1. Next, another assessment should be done on their two services. That would be three in total.
Another benefit it brings is for better monitoring. These assessments shall help you see the areas for close monitoring. For example, upon assessment, you discovered some lax with their cybersecurity. Or it could be with their disaster recovery management.
Once you are aware, this shall help you fix on what to monitor foremost. Which areas should you give more priority? How can I address this concern with the vendor? Should I add more regulations to the contract?
Yes, handling third party risk assessments benefit your business, a lot.