Tuesday, July 23, 2024

How a Third-Party Risk Management Can Do Serious Damage, and What To Do Instead

When most people think of risk management, they think of a lengthy yet necessary process where a company roots out any and all potential risks to the company and works toward quashing them. Yet many don’t realize that risk management itself could also be a risk. When not done properly, risk management could prove to be an expensive endeavor that may not even get the desired results.

Risk management is a thorough process that involves a company conducting an assessment of any and all risks that the company may be at risk of. This can include financial risks that can harm the company’s income, compliance risks that can get the company into legal trouble, or reputational risks that can affect how the company is perceived by others and how easily they can acquire clients.

Despite how important risk management is and how much it can save a company money, it’s important for a company to also be diligent about their third party risk management. Take a look at the below guide to learn more.

What Are Some Ways Risk Management Can Harm a Company?

Not being thorough

It is crucial for a risk assessment to be as complete as possible. No stone should be left unturned during a risk assessment, no matter how seemingly unimportant or unlikely a risk may be. An assessment team should take great pains to be throughout during the risk assessment, from beginning to end.

By neglecting to assess risks from certain departments, or failing to record every risk in the register, a risk assessment can leave a company vulnerable to risks that it was not anticipating. This can leave a company with a damaged reputation, lost clients, or a deeply wounded bottom line. In addition, a risk assessment remaining incomplete can also cost the company money and time, as a new risk assessment may need to be conducted.

Underestimating the importance of a risk

It is easy for companies to sweep some risks under the rug, especially when there are more pressing, time-sensitive risks to attend to. However, it’s important that these other risks aren’t completely forgotten. No matter how small or unlikely risk is at harming a company, every risk that an assessment uncovers should either be resolved or monitored by the appropriate departments.

Those that will be reviewing the results of the risk assessment can then decide what risks require immediate attention, and which can be put on the back burner. As such, those conducting the assessment should not assume which risks can be included on the register, and which can be left off – all risks that threaten a company should be included, and an estimated priority ranking.

Not monitoring risks

Not every risk requires immediate action. Lower-priority risks can simply be monitored, and later addressed if things start going south. Yet if risk goes unmonitored, a company could be completely blindsided when a supposedly low-risk risk becomes a devastating blow to the company.

Once an assessment is complete and high-priority risks identified, it is imperative that the appropriate departments are made aware of potential risks that they should be on the lookout for. Each department should also remain diligent and not neglect to monitor risks. By remaining attentive, a company is poised to take action when and if necessary.

What To Do Instead

Using multiple tools and a risk register

A risk assessment team should be making use of several risk management tools, as well as build a register as the assessment is being conducted. Failing to do so may result in an incomplete or inaccurate risk assessment.

There are plenty of tools and questionnaires available for companies to utilize. These tools should be used throughout the assessment process to ensure nothing is left forgotten. And as the assessment is being conducted, the assessment team should also be developing a risk register. The register should be used to record all risks identified, as well as how likely the risk is to become a tangible problem. This record will not only be used for the duration of the assessment, but also as a standing guide for the company to use in the future.

Treating every risk with appropriate caution

Every risk should be treated as if it has the potential to cost the company dollars and clients, should the risk become reality. By estimating the probability of each risk becoming a threat and acting accordingly, a company can save time, money, and resources that may be lost, should a high-risk risk be left unresolved.

Contrariwise, a low-priority risk being treated as a high-priority risk can also be a costly time sink for a company. Focusing too many efforts on a risk that has a low probability of ever becoming reality can also take away resources that could have been used on more important risk resolutions.

Monitor risks

Lower-risk risks uncovered in an assessment don’t need to be resolved in the near future; immediate action should only be taken on high-priority risks that are an immediate threat to a company’s income, reputation, or security.

However, simply because the risk is on the lower end of the spectrum doesn’t mean it should be ignored altogether. Lower-priority risks should be monitored by the appropriate departments. This way, if a risk becomes more likely to become a real problem, the company is already prepared and can address the problem before it spirals out of control. For example, if a small company is at risk of their social media posts being received negatively – a reputation risk – they can vet any marketers whom they are considering hiring to manage their social media.

Third-party risk management is a crucial part of running a business. By identifying and addressing risks that could cost the company money, time, clients, resources and even its reputation, a risk assessment can help a company stay afloat. Yet businesses should also realize that, when conducting a risk assessment, they should also take care that the assessment is comprehensive. A risk assessment should ultimately be thorough, accurate and serve as a useful resource to be used by the company in the future.

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