Forward-thinking third-party risk management (TPRM) executives recognize risk management transcends compliance obligations. Third-party risk management done well can serve as a cornerstone for improving ROI, enhancing profitability and operational resilience.
Traditional oversight methods fall short in a world where businesses manage many suppliers, highlighting the need for advanced TPRM solutions. These solutions mitigate risks and harness the potential of intricate supplier relationships, thereby bolstering financial returns.
Let’s explore how ROI and third-party risk management can propel your company toward success.
The Return on Investment (ROI) in risk management, particularly within the TPRM context, is quantified by assessing how investments in third-party risk management systems enhance overall financial performance. A clear understanding of this ROI enables organizations to prioritize resources effectively. Furthermore, companies can implement more effective risk management strategies, ensuring each investment aligns with broader business objectives.
Consider the current landscape: According to Gartner research, 60% of organizations manage over 1,000 suppliers, each contributing to a complex and expansive threat landscape. Aravo’s TPRM Benchmarking Survey sheds light on the challenges, revealing that 90% of respondents have faced at least one incident through third parties that threatened business operations or reputation.
Despite these significant risks, many companies still rely on manual systems like spreadsheets and emails for risk management. Transitioning to robust, holistic TPRM solutions enhances the management of these complexities and significantly improves ROI. Streamlining processes and reducing vulnerabilities is just one way to improve the bottom line.
Let’s discuss specific benefits, starting with how efficient processes and resource management directly contribute to improved financial outcomes. By focusing on these key areas, organizations can see a clear pathway to saving money and enhancing overall operational efficiency.
Effective TPRM platforms streamline vendor management, reducing costs and enhancing operational efficiency. These platforms automate and standardize vendor onboarding and management, providing capabilities such as:
Deloitte’s research indicates that operational costs linked to these relationships can constitute up to 80% of overall spending in companies highly dependent on third parties.
Thus, the right TPRM system mitigates risks and aligns vendor management costs with business objectives, enhancing the ROI of a TPRM framework.
Technology enhances the engagement process with existing third parties and streamlines the onboarding of new suppliers to fulfill business functions. Aravo’s TPRM Benchmarking Survey highlights a stark contrast between the outcomes of third-party incidents in mature and fragmented TPRM programs.
Specifically, 80% of respondents from organizations with immature TPRM frameworks reported significant disruptions or reputational risks, compared to only 10% from organizations with mature frameworks.
This disparity underscores the increased risk exposure for organizations that need to implement risk-driven workflows and comprehensive oversight from the initial onboarding and third-party engagement stages faster.
Moreover, advanced TPM software streamlines and automates the vendor onboarding process and facilitates the maturation of TPRM programs. This enhances operational productivity and offers substantial business benefits.
These systems reduce the time and effort required to manage third-party engagements effectively. In other words, technology directly reduces business disruption risks and improves productivity.
The management of rising numbers of suppliers and third parties can no longer be accomplished effectively using manual or office-based products. Fragmentation occurs as different business units implement their own solutions, complicating the standardization across multiple business processes.
This challenge is further highlighted by a Deloitte Survey, which found that only 23% of organizations have made significant progress in integrating their TPRM program. This indicates a gap in the productivity and efficiency of program users.
By adopting the right TPM platform, organizations can streamline and automate ongoing vendor management, significantly enhancing the productivity of those responsible for managing third-party engagements.
An effective TPM platform includes a standardized and centralized process for managing all third parties. Pre-configured assessments can also be leveraged as part of the third-party evaluation process, benefiting users by simplifying their tasks and reducing the time spent on manual processes.
Disparate systems and manual tools create inefficiencies and decentralization in the onboarding, risk assessment, evaluation, and approval of third parties and their associated engagements. An integrated TPM platform streamlines these processes, enhancing end-to-end workflows from initiation to completion.
Moving away from manual systems allows for maintaining a single organizational-wide inventory of all third-party relationships, including their firmographic data and risk profiles.
This system supports best practices and pre-built workflows. It allows customization to match your business processes from request and intake through due diligence to transactional-based data integration and beyond.
Engaging with high-risk third parties poses potential risks, including revenue loss, increased operational costs, and potential damage to your organization’s brand.
However, in some cases, it is strategically beneficial or unavoidable to engage with these types of third parties. Adopting a risk-based approach ensures that you engage the right suppliers, vendors, and sourcing standards that align with your business objectives before their activation, thereby averting negative impacts.
Platforms like Aravo facilitate this with an assessment process that aligns with your enterprise’s risk framework. Top-tier platforms offer capabilities such as initial risk assessments, enhanced due diligence, continuous monitoring, and risk intelligence data integration.
Look for these features to be integrated into any platform you consider.
Inconsistent third-party management relative to applicable laws, regulations, ethical standards, or organizational policies can result in severe non-compliance fines and reputational damage.
The Stanford Law School’s Foreign Corrupt Practices Act (FCPA) Clearinghouse reports an average 10-year sanction of $176 million USD. Beyond the FCPA, regulations like GDPR and the UK Bribery Act also impose stringent penalties that could significantly harm your reputation.
A robust third-party risk management platform enables comprehensive third-party assessments across various risk areas, such as Anti-Corruption, Modern Slavery, Information Security, ESG, and Data Privacy. The platform must include:
Major disruptions to your supply chain, such as COVID-19, reshaped the risk landscape. Additionally, climate risk and increasingly frequent major weather events are compelling organizations to enhance the resilience of their supply chain management processes.
Key challenges include getting products to market, maintaining essential services, and safeguarding customers from the impacts of supply shortages.
According to Deloitte’s 2022 global third-party risk management survey, while 60% of organizations consider resilience and business continuity planning a strength, only 36% possess a high or very high capability in global supply chain contingency management.
Technology plays a pivotal role in helping assess the risk and resilience of your third-party supply chain, identify the impact of disruptions on your business operations, and determine risk mitigation measures to minimize potential costs and revenue losses.
Delays in third-party risk assessments and low approval rates can significantly hinder onboarding, impacting your organization’s ability to launch new products swiftly.
Another Deloitte survey highlighted that improvements in the supply chain could contribute as much as 30% to net revenue. Additionally, the Aravo TPRM Survey revealed that organizations experienced 89% faster supplier onboarding times when their programs were fully integrated.
Effective TPM software streamlines the onboarding process to facilitate rapid onboarding and approval of third parties. This reduction in complexity benefits third parties, business owners, risk experts, and procurement teams, directly enhancing the organization’s capacity to bring new products to market more quickly.
To calculate the ROI within a TPRM framework, organizations should quantify both direct and indirect benefits.
Direct benefits include measurable cost savings from avoided incidents and efficiencies gained through automation. Indirect benefits, though less tangible, are equally critical and encompass enhanced compliance and reputation – key factors that preserve customer trust and open up new business opportunities.
Establishing clear metrics for these benefits leads to a comprehensive evaluation of ROI.
The insights provided throughout this article underscore the strategic importance of TPRM in enhancing organizational ROI and sustaining long-term growth. Leaders should evaluate their current systems, identify gaps, and consider how advanced TPRM solutions could be integrated to enhance resilience and profitability.
This comprehensive approach protects against risks and leverages these systems for significant business advantage, preparing your organization to meet the challenges of tomorrow’s risk environment.
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