TPRM Challenge: Increasing Impact of Third-Party Incidents
In this blog series, we discuss four key third-party risk management challenges for 2022. This first blog is about the increasing impact of third-party incidents.
Addressing the growing complexity and impact of third- and fourth-party risks
Although third-party-related business disruption has always been around, it took a pandemic to manifest the full impact of the entanglement of global businesses and the consequences of improper risk mitigation. The effect of third-party disruption is increasingly material and often results in significant monetary loss and/or negative reputational impacts.
The growing material impact outlined in EY research unveiled that in 2021, organizations only had 25% of their TPRM landscape in scope, of which a mere 8% was assessed directly. This supports the argument for an increasing need for the ability to perform assessment and monitoring at a much larger scope and size.
This complexity and therefore the need for transparency continues to expand. The use of fourth parties (e.g., subcontractors) is also growing, driving additional requirements for transparency and control. This challenge will become harder in cases where there is no traceable contractual arrangement or direct relationship with these fourth parties.
The growing complexity of the third- and fourth-party vendor landscape combined with more frequent and sizable disruptions has heightened the need for integrated TPRM frameworks. These improved frameworks require risk-based segmentation, additional scope, and an extension of the TPRM processes to include continuous monitoring and assessments.
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