In order to compete with agile newcomers in the global marketplace, many established companies turn to relationships with third-party providers, but these partners can bring a host of risks as well as benefits, an industry study shows.
Those risks can challenge a firm's legal? and regulatory compliance, information security/ cybersecurity, business continuity, strategic plans, financial viability, and even its reputation, according to the tax and advisory firm KPMG LLP.
Despite those dangers, companies in every sector continue to enlist outside partners to help them manage rising complexity and competition, the firm said. Those third-party providers may range from vendors, suppliers, distributors,? and contractors to brokers, agents, resellers, and contract manufacturers. The exposure to increased risk is worthwhile because such firms have become increasingly crucial to decreasing costs, enhancing customer experiences, hastening speed-to-market, and improving value and profitability, KPMG says.
A careful company can manage the extra risk by staying aware of the most common and pervasive threats, KPMG concludes in a study called "Top 5 Third-Party Risks." "With so much potential damage on ?the line, understanding what to look out for and what practices to avoid is paramount to maintaining good standing with your organization's stakeholders and protecting your company from reputational risk," the study says.
According to KPMG, the five risks generated by third-party partners that pose the most pressing challenge to businesses are:
- insufficient due diligence when onboarding new relationships
- viewing risk in silos as opposed to integrating risks for total impact
- absence of ongoing risk monitoring
- insufficient safeguards for third parties in your network
- thinking your paper program keeps you safe
To protect against those threats, organizations should enhance their third-party risk management processes by ensuring that they include: clear roles and responsibilities, consistency, connectivity, and full execution, KPMG said.
