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Last year alone, 82% of companies experienced data breaches due to a vulnerability being exploited in one of their suppliers or business partners that handle sensitive data on their behalf.
Clearly, third-party relationships offer essential benefits, but they also pose considerable security risks. This is why effective third-party risk management (TPRM) is essential. The foundation of developing an effective TPRM policy is building a complete, competent, proactive, and powerful TPRM Oversight Committee.
Here, we guide you through creating such a committee to protect your organisation from third-party vulnerabilities.
Something to keep in mind:
As you read this article and start building your TPRM Oversight Committee, keep in mind that the most important aspects of developing an effective committee is to have support from both C-suite executives and the board; it’s essential that all departments involved in TPRM are represented on the committee and that these departments all clearly communicate with one another.
Your TPRM Oversight Committee acts as your primary defence against external threats - it’s responsible for directing your organisation's approach to vendor relationships and associated risks.
Your committee should lead all TPRM initiatives, from establishing vendor selection criteria to developing risk assessment protocols and ongoing monitoring processes.
Additionally, it promotes a risk-aware culture throughout your organisation, encouraging all employees to identify and report potential risks. The committee is also responsible for regularly reporting to senior management and the board on the organisation's third-party risk posture.
Ensure your TPRM committee doesn't operate independently.
It’s shown that companies with integrated TPRM committees have risk management practices 2.5 times more mature than those without, so make sure your committee collaborates with your board and executive leadership to create a cohesive risk management strategy, ensuring that your internal TPRM policies align with overall corporate governance and risk appetite.
Assemble a diverse team of experts for your TPRM Oversight Committee:
This diverse composition allows for comprehensive risk assessment and management, bringing together various expertise to address the multifaceted nature of third-party risks.
Knowing the exact purpose and functions of your TPRM committee will help guide your entire decision-making process. Keep the following in mind when building your committee.
Your committee creates and maintains comprehensive TPRM policies.
These cover everything from vendor assessment protocols, to contractual requirements, monitoring procedures, and incident response plans.
Moreover, regular policy reviews ensure they remain effective against emerging risks and changing regulations. The committee should also establish a process for policy exceptions and approvals, ensuring flexibility while maintaining control.
A systematic approach to risk assessment and prioritisation will help you develop tiered risk categories, develop assessment protocols suited to your organisation, and allocate resources to high-risk areas. When prioritising risks, consider factors such as vendor criticality, data sensitivity, and regulatory requirements.
Establish strong monitoring and reporting mechanisms.
Define key performance indicators (KPIs), set risk metrics, enforce regular reporting cycles, and use technology for automated, real-time risk monitoring. Develop dashboards that provide a clear, real-time view of your third-party risk landscape, enabling quick decision-making and proactive risk management.
Create clear escalation procedures for critical third-party risks.
Define risk thresholds, establish communication channels, and conduct regular drills to test these procedures. Ensure that escalation paths are well-documented and understood by all relevant parties.
Furthermore, include guidance on when to involve senior management or the board, and establish protocols for crisis management in case of severe third-party incidents.
Effective processes are key to a smooth and frictionless TPRM committee. The following processes will help your committee operate in a consistent manner that can be improved on and developed over time.
Operate on a structured meeting schedule. Include monthly or quarterly meetings, annual planning sessions, and emergency meetings as needed. This consistent schedule ensures continuous oversight and quick responses to evolving risks.
Consider a rotating agenda to cover different aspects of TPRM in depth at each meeting, while still addressing urgent issues as they arise.
Use structured decision-making frameworks, including risk assessment matrices, escalation criteria, voting procedures, and cost-benefit analyses. These ensure consistent, transparent, and effective committee actions.
Develop a clear decision tree for common scenarios to streamline the process and ensure consistency. Regularly review and update these frameworks to reflect changing business needs and risk landscapes.
Maintain thorough records of all committee activities. This includes meeting minutes, risk assessments, policy decisions, incident reports, and performance metrics. Comprehensive record-keeping ensures accountability, provides an audit trail, and supports continuous improvement.
We encourage you to use a secure, centralised document management system accessible to all committee members, facilitating easy retrieval and review of past decisions and actions.
Integrate your TPRM committee with your organisation's existing risk management framework. Align with enterprise risk management strategies, coordinate with other risk committees, and collaborate with business units. This integration creates a holistic risk management approach and enhances organisational resilience.
Establish regular touchpoints with other risk functions to share insights and ensure a unified approach to risk management across the organisation. Consider creating a risk liaison role to facilitate this integration.
Use cutting-edge tools for risk assessment and monitoring. These include automated vendor assessment, continuous monitoring systems, predictive analytics, integration APIs, and cloud-based solutions.
Use dashboards with thorough reporting capabilities for real-time insights into your third-party risk posture. When selecting a TPRM technology platform, prioritise integration capabilities, scalability, comprehensive reporting, user-friendly interfaces, customisation options, and strong security features.
Risk Ledger stands out as a leading TPRM solution, revolutionising supply chain security risk management. It equips both large and small organisations with powerful tools and essential knowledge to significantly boost their security maturity.
Risk Ledger delivers five key features:
When evaluating Risk Ledger or other TPRM technologies, ensure they align precisely with your organisation's needs and existing risk management framework.
Prioritise solutions that integrate seamlessly with your current systems, deliver clear, actionable insights, and directly support your risk management objectives.
While a TPRM Oversight Committee offers substantial benefits, organisations must navigate various challenges to maximise its impact. By understanding common pitfalls and applying proven best practices, companies can significantly enhance their third-party risk management capabilities.
Address common pitfalls such as lack of executive support, siloed risk management, inadequate resources, overreliance on manual processes, inconsistent methodologies, poor communication, and neglect of continuous monitoring.
To overcome these challenges:
Key success factors include executive-level champions, cross-functional expertise, clear governance, data-driven approaches, agile response capabilities, collaborative vendor relationships, and continuous improvement.
The success of your TPRM program depends on support from top-level management and directors and requires representation from every department on the committee. Clear inter-departmental communication is crucial to ensure all aspects of the program are aligned, and finally, a risk-focused approach is optimal for managing TPRM, which allows for prioritisation of resources and efforts where they're most needed.
We encourage you to explore innovative solutions like Risk Ledger, which offers a fresh approach to supply chain security risk management. Risk Ledger's collaborative platform and data-driven insights can provide your organisation with valuable tools to enhance your TPRM efforts.
Ultimately, a well-structured TPRM Oversight Committee, supported by the right processes and technologies, will both protect your organisation from threats and also become a competitive advantage.
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