Contract management is an exercise in risk mitigation because contracts govern the flow of resources and money to outside interests. To manage that flow is to manage risk, but risk is not limited to contractual obligations. There are many factors that impact the level of risk throughout an enterprise.
Third Parties Defined
Third parties are external organizations, agencies and individuals with which an operation has a commercial relationship. These can include vendors, suppliers, contractors, partners and service providers - each creating a vulnerability to your business. Any disruption with those third parties can disrupt your business.
Suppliers can be negatively impacted by circumstances outside of their control. Vendors can fall victim to cybercrime, and your business suffers the consequences. If a third party is unable to meet its contractual obligations, its other contractual relationships are affected and increase the likelihood of financial penalties and lasting damage to the business' reputation. It is these types of consequences that make third-party risk management so important.
Reputation Protection
Reputational risk is the damage that can occur to a business when it fails to meet the expectations of its stakeholders and is thus negatively perceived. It can affect any business, regardless of size or industry. Third-party risk management demonstrates to existing and potential collaborators that the business is safe, secure and compliant. Just as you embark on third-party risk management, so should your third party partners. It should be a priority to ensure that due diligence is taken seriously with third-party providers to reassure efficacy of the business.
Business Continuity
Business continuity planning helps prevent disruption in your business if a third party is unable to meet its contractual obligations. Make sure your third-party providers have policies and procedures of their own to avoid disruptions that could impact your business.
Revenue Protection
Revenue protection secures a scope for adaptation to wider market developments in terms of profits made from contractual agreements and financial penalties.
Streamlining Operations
Third-party risk management supports the end-to-end management of the contract lifecycle and aligns systems with optimal methodologies. TPRM focuses attention and resources to prevent delays, maintain compliance, and avoid failure.
