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How To Build a Business Case for Better Third Party Risk Management

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Boards of directors together with their C-suite teams have begun to realize just how little risk information they actually have about their third party relationships, and how fragmented that information can be across an organization of even a modest size.

Nearly nine out of ten organizations faced a disruptive incident with third parties over the past two-to-three years. More than one-quarter suffered reputational damage. This translates into significant financial impact – fines, customer reparations, and other revenue losses now stretch into billions of dollars for large multinationals that fail to manage third parties appropriately. Share prices suffer too, with Deloitte estimating a 2.55% reduction in share value as the result of a regulatory sanction.

As a result, third party risk management is high on the agenda of both the C-suite and the Board of Directors for 2017. Leading organizations recognize that the Board holds ultimate responsibility for third party risk and now often appoint a specific member charged with ownership. Consequently, engagement at the C-suite level has also never been higher.

This means many organizations are in the process of reviewing the people, processes and technology they have in place for their existing third party risk management programs. Often the Compliance, legal and risk functions are charged with reviewing and improving these programs. However, transformation at this scale is more often than not contingent on investment.   While Compliance often requires funding for large enterprise projects, such as third party risk management programs, they are not always versed in ‘business speak’.

The following sets out some of the key justifications for a business case for TPRM with seven business reasons for such a program and the business drivers that underpin them:

1. Gain real time visibility of third party risks, organization-wide, for improved decision-making

Business drivers:

  • Improve profitability: Better, faster decision making to drive better business performance.
  • Protect business value: Protect against financial and reputational risk losses from penalties, sanctions, and negative media headlines.

2. Accelerate third party due diligence, onboarding, and regular reviews – making the organization a valued business partner

Business drivers:

  • Reduce business costs: Reduce time and costs associated with onboarding and monitoring.
  • Maintain regulatory compliance: At onboarding and as an ongoing process.
  • Protect business value: Protect against financial and reputational risk losses from penalties, sanctions, and negative media headlines.

3. Manage risk – including operational risk and internal controls – better day-to-day

Business drivers:

  • Increase business agility: Respond to business and regulatory change quickly and efficiently.
  • Reduce costs: Reduce time and costs associated with program management and change.
  • Protect value: Potential for disruptive incidents/impact minimized through better risk management across all three lines of defense.

4. Minimize exposure to reputational risk, compliance risk and regulatory risk

Business drivers:

  • Protect business value: Protect against financial and reputational risk losses from penalties, sanctions, and negative media headlines.
  • Maintain regulatory compliance: Even as regulations change.

5. Ensure good governance of third party programs, including full auditability 

Business drivers:

  • Protect business value: Protect against financial and reputational risk losses from penalties, sanctions, and negative media headlines. Help keep executives out of jail.
  • Reduce costs: Reduce time and costs associated with program audit.

6. Improve strategic and financial outcomes of third party relationships

Business drivers:

  • Grow business value: Through optimized third party performance.

7. Expand third party and supply networks – and enter into new markets – with confidence

Business drivers:

  • Grow business value: Through optimized performance, expansion and innovation opportunities associated with third parties.

Third party risk programs – done well – can add significant value to an organization over time, enabling it to execute on business strategy, improve profitability, and enhance its reputation.

For a comprehensive examination into the business motivations that drive a successful business case for TPRM, read our complete White Paper The Business Case For Better Third Party Risk Management - Better business outcomes through good governance.

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For more information about Aravo solutions for Third Party Risk Management, please contact us.

 

Related Content:

White Paper - The Business Case For Better Third Party Risk Management

Executive Overview - The New GDPR: Taking A Strategic Approach To An Internationally-Focused Data Protection Rule

OCC Update Briefing 2017-7 - The OCC's Supplemental Examinations Procedures for Third Party Relationships Raising the Bar for Banks' Third Party Risk Management

Infographic - EU GDPR & Third Party Risk - 5 Steps You Can Take Today

Blog - Third Party Risk: Why Global 2000 Companies Should Be Focused on Third Party Compliance

Blog Post - OCC BULLETIN 2017-7: The OCC's Supplemental Examinations Procedures for Third Party Relationships

Analyst Podcast - Session 1 - How to Develop a Third Party Management Strategy

Request A Demo of Aravo Third Party Risk Management Solutions

 

 

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