Businesses become quite dependent upon third-party vendors to deliver essential services and products. While such relationships may prove to be rewarding, they also bring along an element of risk. Data breaches, compliance violations, and financial instability—you name it.
That is where third party risk management software comes in: to assist the organization in identifying, assessing, and mitigating certain risks. TPRM software may make the process easier, but having the software alone is not enough either. You have to track the right metrics for the software to be of any great value.
Here’s an overview of major metrics to watch out for when choosing a TPRM software.
Third-party Risk Management Metrics Explained
TPRM metrics are important quantitative measures that help organizations calculate how exposed they are to risks related to their third-party vendors. They help an organization understand some valuable aspects of a vendor’s performance and compliance, as well as general exposure.
You can make the right decisions to enhance your risk management strategies and build greater resilience in your organization by tracking the right metrics. Here’s the list of the key ones to pay attention to.
1. Risk Assessment Scores
One of the key indicators you must monitor is the risk assessment rating for each third-party supplier. This rating measures precisely how much risk a third-party supplier poses, based on factors such as their financial state, history of compliance, and operational capability. Because you will be using your risk management software provided by teams like ImmuniWeb to create these ratings, your high-risk suppliers will be immediately identifiable.
An important aspect is to track how their scores have changed over time. One vendor could have been rated at a low level of risk at first, but the situation can change for the worse, for example. This regular review keeps you ahead of possible problems.
2. Compliance Status
There is also compliance with regulatory requirements and internal policies. Third-party software for risk management by teams like ImmuniWeb makes it easy to track the compliance status of your vendors to have a clear picture of where your vendors comply or don’t comply with regulations necessary for a business, such as GDPR, HIPAA, or PCI-DSS.
By carrying out periodic compliance checks, you will be able to identify suspicious activities and react to them in advance. The measurement strengthens your risk management system as a whole.
3. Frequency of Incidents
Data breaches, service errors, and other forms of disruptions from service providers are included in this metric. By categorizing incidents based on their impact and frequency, you may be better equipped to evaluate your risks.
For instance, if there are constant data breaches on the part of a vendor, that is a clear indication of risk to your organization. This metric helps you make informed decisions about retaining or not retaining vendors and can even be used in negotiating better contract terms to improve security measures.
4. Vendor Performance Metrics
One immediate example of performance is through the KPIs. These could be the quality of service, the response time when issues arise, and how quickly they deliver on the availed services. The TPRM software will track such a metric over time, showing whether a vendor is reliable or not.
By tracking such metrics, you will be better equipped to look for trends that will come to light, for example, if a provider fails to meet deadlines consistently or expected quality standards. This data can be invaluable to making informed decisions and adjusting your strategies.
5. Financial Risk Indicators
This is another crucial aspect of risk management. Keeping track of the financial metrics, such as revenue trends and credit scores, as well as financial ratios, will inform you about the health of a vendor’s financials. When a vendor’s financial situation worsens, it may pose a risk to your organization, especially if they are a critical supplier.
With your TPRM software, it is possible to track these financial risk indicators to catch the red flags much in advance. This means you might avoid disruptions and ensure you are working with the right business partners that have your back.
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6. Contract Compliance and SLA Adherence
Monitoring contract compliance and adherence to the SLA are essential in ensuring accountability. This involves tracking the response times, uptime guarantees, and deliverable timelines, among others. TPRM software can make this entire process far easier by automating it and, in turn, making tracking vendor performance against set contracts quite easy.
By monitoring such metrics, you are in a better position to hold vendors accountable for any shortcomings on their part. You can take the right course of action if they fail, which also improves general performance.
7. Risk Mitigation Efforts
The other area to measure is the effectiveness of risk mitigation strategies implemented for third parties. This can be done through monitoring metrics on the success of these initiatives: for example, the percentage resolved or time taken to resolve high-priority issues identified.
By keeping tabs on these metrics, you will, accordingly, be capable of judging whether your risk management strategies are effective or not, and what adjustments are required to make them even better. It helps you make certain that the organization is always working towards improvement as far as risk management is concerned.
8. Diversity and Geographic Risk Exposure
This aspect would be crucial tracking for risk mitigation in case you become overly reliant on one vendor or geographic region. Metrics that will assist in tracking vendor diversity include a balance of suppliers across industries and geographic locations.
For example, if all of your vendors are located in a region prone to a specific natural disaster, then your supply chain is one disaster away from disruption. Diversification of vendors will contribute to organizational resiliency and reduce the likelihood of disruption due to a regional disaster.
Conclusion
It’s not just having the third-party risk management solution, but rather tracking key metrics that will give insight into the performance of your vendors. Assessing those various aspects will help you make informed decisions so you make the performance of your business the most effective. So, if you aren’t already doing so, now is the time to start keeping a tab on these crucial metrics!
