2024 Third-Party Risk Management Best Practices

March 20th, 2024 Hannah Tichansky Reading Time: 5 minutes
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Third-Party Risk Management (TPRM) is witnessing a landscape shaped by distinct and impactful changes in 2024. Among others, TPRM professionals plan to focus on these several best practices:

  1. Environmental, Social, and Governance (ESG)
  2. Resilience in supply chains
  3. AI-driven predictive analytics
  4. Integration of cybersecurity and physical security
  5. Collaborative risk management platforms

More than simply trends, these practices respond to a series of global shifts: the post-pandemic economic landscape, technological advancements, and the evolving regulatory environment.

These shifts have catalyzed a reevaluation of traditional TPRM strategies, driving a transition towards more dynamic, technology-driven, and ethically conscious approaches.

In the wake of a global pandemic, businesses have had to reexamine their supply chain dependencies and vendor relationships, leading to a heightened focus on resilience and adaptability.

Technological advancements, especially in AI, provide new tools and methodologies for risk assessment and management, fundamentally altering how TPRM professionals approach their work.

Furthermore, the evolving regulatory landscape, marked by increased data privacy laws and sustainability mandates, has necessitated a more agile and compliant approach to vendor management.

What Are TPRM Best Practices for 2024?

As the year progresses, it’s clear that these approaches will be fundamental in navigating the complexities of taking a serious approach to TPRM. This shift goes beyond merely adapting to new technologies or strategies; it represents a fundamental change in risk perception, evaluation, and management.

Integrating these practices signifies a move towards a more interconnected and transparent TPRM ecosystem, where data-driven insights, ethical considerations, and collaborative efforts become key decision-making drivers.

As we delve into these practices, it becomes evident that they are linked, each playing a role in creating a comprehensive and robust TPRM strategy.

1. Advancing ESG Integration in TPRM: Technologies, Standards, and Digital Ethics

The move towards integrating ESG factors into TPRM processes signifies a broader shift in:

  • Corporate values
  • Aligning business operations with societal expectations on sustainability
  • Ethical practices and governance

Beyond Frameworks: The Evolution of ESG Metrics and Standards

As Environmental, Social, and Governance (ESG) in TPRM converges towards more harmonized standards, it will merge existing frameworks like:

The demand for framework interoperability drives this movement to simplify reporting and assessments across borders and industries. A universally accepted ESG framework will enable more efficient comparisons of third-party vendors’ practices, thereby streamlining TPRM processes and reducing associated costs.

Technological Advancements and Data Analytics

Advancements in data analytics, AI, and machine learning (ML) will revolutionize ESG integration into TPRM by enhancing the accuracy, speed, and predictive capabilities of assessments. These technologies will enable real-time insights into vendors’ ESG performance, allowing organizations to better identify risks and align their third-party portfolios with their ESG goals.

The Role of Regulatory Pressures and Investor Demand

Increasing regulatory requirements and investor demands for ESG transparency will shape TPRM. Organizations will need to ensure third-party compliance with stricter standards, driven by investor use of ESG criteria for risk evaluation and a push for more robust TPRM practices to meet these expectations and regulatory demands.

Digital Ethics and Sustainability

Furthermore, the expanded view of ESG criteria now includes digital ethics and sustainability, reflecting the growing influence of digital operations on environmental and social aspects.

Assessing vendors’ data management practices, energy consumption, and overall digital footprint has become integral to ESG evaluation. This broader approach considers long-term sustainability and ethical implications of digital practices, extending responsible business conduct into the digital domain.

Embracing these expanded ESG criteria positions organizations as leaders in responsible and sustainable practices, aligning with global standards and stakeholder expectations.

2. Resilience in Supply Chains

Organizations seeking stability and adaptability must build resilience into their supply chains in today’s dynamic global environment.

To embrace this approach, an organization should:

  • Diversify supply sources
  • Adopt agile logistical methods
  • Maintain robust inventory management

Incorporating strategic procurement practices allows the organization to focus on the selection of suppliers that can offer flexibility and reliability under varying conditions, helping to avoid disruptive factors like concentration risk.

This includes evaluating suppliers’ ability to withstand disruptions and their commitment to sustainable and ethical practices. Achieving this would effectively navigate changing market conditions, geopolitical shifts, and environmental challenges.

Enhancing procurement processes to include rigorous due diligence and continuous monitoring of supplier health enables early identification of potential risks. Collaboration and transparency with suppliers and partners enhance this resilience, ensuring a coordinated response to various challenges.

Furthermore, establishing strong relationships with key suppliers through regular communication and joint planning sessions can lead to more innovative and resilient supply chain solutions.

Ethical Approaches to Environmental and Social Responsibilities

In addition, resilient supply chains incorporate sustainability and ethical practices and align operational strategies with environmental and social responsibility. This comprehensive perspective supports business continuity and competitive advantage, and addresses the risk associated with fourth parties.

A resilient supply chain that combines operational efficiency, risk management, sustainability, and ethical considerations allows organizations to face current challenges and prepare for future uncertainties effectively.

3. AI-Driven Predictive Analytics

The integration of AI into human-driven TPRM is innovating risk management functions. By employing machine learning and data analytics, professionals in this field can now forecast potential risks with enhanced accuracy, while still allowing for human-driven decision making.

AI-driven analytics, combined with traditional insights from TPRM personnel, facilitate a deeper understanding of:

  • Vendor behaviors
  • Financial stability
  • Compliance factors
  • Their overall risk profile

The adoption of AI in this area provides additional tools for continuous monitoring, streamlining risk assessment processes, and contributing to a more robust and forward-thinking approach to managing vendor relationships.

4. Integration of Cybersecurity and Physical Security

Integrating cybersecurity and physical security within TPRM reflects a comprehensive approach to managing organizational risks.

In today’s interconnected world, threats to digital infrastructure can have direct material consequences, requiring a unified security strategy.

This integration involves assessing the digital defenses and physical security measures of vendors. It’s becoming increasingly important to examine how vendors protect against cyber threats, as well as how they secure their physical premises.

This dual focus, complemented by continuous monitoring of security ratings, ensures that organizations are safeguarded against various risks.

Approaching TPRM Holistically

Moreover, blending these security domains encourages a holistic view of vendor risk management. It prompts organizations to consider how digital and physical security measures interact and complement each other.

The outcome is a more robust and resilient security posture for the organization and its entire network of third-party relationships.

The trend towards integrating cybersecurity and physical security is a proactive response to the evolving nature of threats. It underscores the need for TPRM professionals to adapt and expand their risk assessment criteria, ensuring comprehensive protection in a landscape where the lines between digital and physical risks are increasingly blurred.

5. Collaborative Risk Management Platforms

The emergence of collaborative risk management platforms significantly advances third-party risk management. These platforms create a networked community where organizations exchange information and best practices, enhancing the collective understanding and management of risks.

Through these platforms, businesses tap into a wealth of:

  • Collective intelligence
  • Gaining deeper insights into vendor risks
  • Industry trends
  • Effective mitigation strategies

This approach broadens the understanding of risks and uncovers emerging issues that might be overlooked in isolation.

Better Visibility, Better Decisions

Moreover, collaborative platforms transform TPRM by enabling coordinated responses to risks. They equip organizations with a comprehensive perspective for more informed decision-making, which is essential in today’s complex business environment.

In summary, collaborative risk management platforms represent a shift towards a more connected and proactive approach in TPRM, transforming it into a community-driven model that enhances the overall capacity to manage risks effectively.

Maximize Your TPRM Strategy

As we advance through 2024, integrating these practices is foundational in shaping a comprehensive third-party risk management approach. This dynamic integration caters to the multifaceted nature of third-party risks, enabling organizations to navigate the complexities of the current TPRM landscape with greater efficacy.

Organizations must be agile in this evolving environment, embracing new technologies and methodologies while maintaining a solid ethical foundation. The synergy of AI-driven analytics and an expanded view of ESG criteria enables a more nuanced understanding of vendor relationships.

By participating in these platforms, organizations can benefit from a wider pool of insights and experiences, enhancing their ability to foresee and mitigate risks.

To truly maximize the potential of these strategies, partnering with a leader in the TPRM field, such as Aravo, becomes instrumental. With Aravo, businesses remain at the forefront of TPRM innovation, ready to face the challenges and seize tomorrow’s opportunities.

Hannah Tichansky

Hannah Tichansky is the Senior Content Marketing Manager at Aravo Solutions, the market’s smartest third-party risk and resilience solutions, powered by intelligent automation. At Aravo, she manages all content and thought leadership produced for products and campaigns, and contributes as an author for articles and blog posts.

Hannah holds over 12 years of writing and marketing experience, with 6 years of specialization in the risk management, supply chain, and ESG industries. Hannah holds an MA from Monmouth University and a Certificate in Product Marketing from Cornell University.

Hannah Tichansky is the Senior Content Marketing Manager at Aravo Solutions, the market’s smartest third-party risk and resilience solutions, powered by intelligent automation. At Aravo, she manages all content and thought leadership produced for products and campaigns, and contributes as an author for articles and blog posts.

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