Third party risk assessment is a process that organizations use to identify and evaluate the potential risks associated with working with external parties, such as vendors, suppliers, contractors, and partners. This process involves evaluating the third party's financial stability, cybersecurity practices, business continuity plans, and other factors that could affect the organization's operations, reputation, and compliance.
There are several types of risks that organizations may face when working with third parties. Some common types of third party risks include:
By identifying and evaluating these types of risks, organizations can develop strategies for managing and mitigating them.
The goal of third party risk assessment is to ensure that the organization is able to manage and mitigate any potential risks before entering into a relationship with a third party. It’s important to carry out these assessments for the following reasons.
Overall, conducting a third party risk assessment is an important part of managing and mitigating risks associated with working with external parties. By identifying and evaluating these risks, organizations can protect their reputation, assets, and operations, and ensure compliance with industry standards.
The important steps in carrying out a third party assessment include the following.
Identify the third parties that the organization works with: This includes vendors, suppliers, contractors, and partners.
Determine the level of risk associated with each third party: Factors that may influence the level of risk include the type of services or products the third party provides, the level of access they have to the organization's systems and data, and the impact that any potential issues with the third party could have on the organization's operations.
Develop a risk assessment questionnaire: This should include questions about the third party's financial stability, cybersecurity practices, business continuity plans, and other relevant factors.
Collect and review the information: The questionnaire should be sent to the third party and their responses should be reviewed to determine the level of risk associated with working with them.
Evaluate the risk: Once the information has been collected and reviewed, the organization should evaluate the risk associated with each third party. This may involve assigning a risk score to each third party based on the information collected.
Develop a risk management plan: Based on the level of risk identified, the organization should develop a plan for managing and mitigating any potential risks. This may include implementing policies and procedures for working with third parties, conducting due diligence on potential partners, and regularly monitoring the third party's performance.
Review and update the risk assessment regularly: It is important to regularly review and update the risk assessment to ensure that it reflects any changes in the third party's operations or the organization's risk profile.
Organizations may conduct third party risk assessments as part of their risk management process, or as a standalone activity. It is important for organizations to carefully evaluate the risks associated with working with third parties, as this can help to ensure that the organization is able to protect itself and its stakeholders from potential harm.
Third party risk assessments need to be conducted regularly and they might seem like a complex, time-consuming activity. But since they are important for security as well as compliance, they are integral to your third party risk management strategy. At 6clicks we help you automate third party risk assessments so that the effort to carry out these assessments goes down significantly without compromising on the benefits. Check out more on our solution page - Vendor Risk Management.
6clicks helps you automate assessments and compliance associated with multiple standards all on a single platform. To know more about the 6clicks platform, book a demo with us and let our experts show you how we are using ground-breaking technology to make a difference in the risk and compliance industry.