This is the second in a two-part series by Michael Rasmussen on how to take a strategic approach to effectively manage and mitigate third-party risk.

To maintain the integrity of the organization and execute on strategy, the organization has to be able to see their individual third party relationships (the tree) as well as the interconnectedness of third party relationships (the forest). Third party relationships are non-linear. They are not a simple equation of 1 + 1 = 2. They are a mesh of exponential relationship and impact in which 1 + 1 = 3 or 30 or 300. What seems like a small disruption or exposure may have a massive and cascading impact. In a linear system, effect is proportional with cause. In the non-linear world of business, third party risk is exponential. If we fail to see the interconnections of third party risk on the organization, the result is often massive to unpredictable.

The challenge is that different organizational areas are doing similar things in different ways in context of their third parties. Various departments with different responsibilities for pieces of third party oversight will communicate and interact with third parties in different ways. The chaos of these many-to-many communications is slowing down relationships in a time where they need to be more nimble and agile.

The organization needs a common process, information, and technology architecture to support third party management across organization departments that includes a vested interest in third party relationships. Third party management is enabled at an enterprise level through implemen­tation of an integrated third party man­agement architecture. This offers the adapt­ability needed as a result of the dynamic nature and geographic dispersion of the modern enterprise. The right third party management platform enables the orga­nization to effectively manage risk across extended business relationships and fa­cilitates the ability to document, commu­nicate, report, and monitor the range of assessments, documents, tasks, responsi­bilities, and action plans.

Third Party Management Process Architecture

Third party management processes are used to manage and monitor the ever-changing relationship, risk, and regulatory environments in extended business relationships. While third party processes can vary by organization and industry, the common components are . . .

Continued on the ELM Solutions Blog (The GRC Pundit is a guest blogger) . . .

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This is the first in a two-part series by Michael Rasmussen on how to take a strategic approach to effectively manage and mitigate third-party risk.

The Modern Organization: An Interconnected Mess of Relationships

Traditional brick and mortar business is a thing of the past – physical buildings and conventional employees no longer define organizations. The modern organization is an interconnected mess of relationships and interactions that span traditional business boundaries. To take some liberties with the seventeenth-century English poet John Donne, “No [organization] is an island unto itself, every [organization] is a piece of the broader whole.”1

Layers of relationships go beyond traditional employees to include suppliers, vendors, outsourcers, service providers, contractors, subcontractors, consultants, temporary workers, agents, brokers, intermediaries, and more. Complexity grows as these interconnected relationships, processes and systems nest themselves in intricacy, such as deep supply chains. Today, business is interconnected in a flat world in which over half of the organization’s ‘insiders’ are no longer traditional employees.

In this context, organizations struggle to identify and govern their third party business relationships with a growing awareness that they stand in the shoes of their third parties. Risk and compliance challenges do not stop at traditional organizational boundaries. An organization can face reputation and economic disaster by establishing or maintaining the wrong business relationships, or by allowing good business relationships to sour because of weak governance of the relationship. Third party problems are the organizations’ problems that directly impact the brand and reputation while increasing exposure to risk and compliance matters. When questions of business practice, ethics, safety, quality, human rights, corruption, security, and the environment arise, the organization is held accountable, and it must ensure that third party partners behave appropriately.

The Inevitability of Failure

The fragmented governance of third party relationships through disconnected silos leads the organization to . . .

Continued on the ELM Solutions Blog (The GRC Pundit is a guest blogger) . . .

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