Every business has risks that are unique to its environment. Business risk can result from significant conditions, events, circumstances, or actions that could negatively affect a company’s ability to achieve its goals and objectives and implement its strategies.
Regardless of the industry, the success of any business depends on how well they manage their risks. And in today’s dynamic risk environment, having a solid approach to risk management is more critical than ever.
Risk management is a systematic approach to understanding, identifying, assessing, evaluating, and addressing both internal and external risks to help reach organizational goals. Let’s take a look at some vital risk management best practices.
Risk Management Best Practices You Can Implement Today
Companies should implement a holistic approach to risk management, known as integrated risk management, that helps improve decision-making and performance through an integrated view of how well an organization manages its risks. Integrated risk management is characterized by six attributes: strategy, assessment, response, communication and reporting, monitoring, and technology.
It’s critical to understand the full scope of risks. Hence, companies need to get a comprehensive view across all business units and risk and compliance functions and understand risks posed by key business partners, suppliers, service providers, and other third parties. To gain a comprehensive view across all business departments and functions, risk management best practices suggest using technology to get greater visibility into operations across the entire company structure.
It’s also important to pay attention to these 5 key areas:
- Clear communication within departments, between departments, and with third parties and other stakeholders to ensure all of them base their decisions on the same information
- Collaboration – all teams should work to break down silos and help protect and inform the integrity of all data
- Flexibility to be able to see across the whole structure and identify weak spots, gaps in the market, and any inefficiencies in operations
- Resilience – the company’s ability to withstand cybersecurity threats and a changing industry or market
- Knowledge – it’s critical to ensure the free flow of information between collaborators to provide risk analysis, structural analysis, strategic analysis, or any other investigation to help inform strategy and mitigate risks.
Companies need to determine what the risks are to their organizations and create steps to mitigate those risks. Remember that managing risk should be a continuous and constantly evolving process to ensure that all mitigation efforts are effective. You should also tailor your risk management processes to different risk categories.
Vendor Risk Management Best Practices
Today, large businesses typically outsource more of their operations to third-party vendors, such as human resources, billing, finance, supplies, services, and more. Working with a third-party vendor is inherently risky because you trust a business whose practices and processes you can’t control. And as companies rely on third-party vendors more often and at a larger scale, the data security and privacy risks they face have also increased
That’s why it’s essential to create a good vendor risk management program that can mitigate risk and prevent data breaches and data leaks. Here are some of the best vendor risk management practices any third-party risk management program can benefit from.
Know Who Your Vendors Are
Keep an accurate listing/inventory of your third-party vendors. The good idea is to compare your list from the Accounts Payable department to your vendor list. You should make sure you haven’t overlooked a vendor when completing risk assessments.
Create a Vendor Assessment Process
Vendor risk assessment is an essential step in the vendor management process. It gives you an in-depth understanding of any potential risks posed by each of your vendor relationships. Use relevant vendor questionnaires to assess your vendors’ security and compliance practices and prevent any unwanted consequences. It would be best if you created questionnaires tailored to your specific industry and each of your vendors.
With START, you’ll be able to ensure straightforward assessments and streamline the vendor onboarding process.
Be Transparent
Communicate with your vendors. Third parties need to know exactly what you expect from them and when so that they can meet or exceed the terms of the agreement. No vendor should have to guess what actions or accesses might pose a risk to your company. Ensure that vendors understand your security standards and policies and have agreed to adhere to those standards. Effective communication can reduce room for misunderstanding and allow you to proactively address any issues before they become security incidents.
Continuously Monitor Third-party Vendors
Continuously monitoring third-party vendors is an accurate way to evaluate a vendor’s true security posture. Through continuous monitoring, companies can be immediately alerted to any potential vulnerabilities throughout their entire vendor network. When these weaknesses are exposed, risk management teams can react quickly and mitigate these exposures in near real time. There’s no need to wait for a security assessment scheduled once a year.
Plan Risk Response Options
You should establish exactly what to do once a risk is detected. There are four options to consider:
- Accept the risk and then choose not to take any immediate action unless it occurs
- Avoid the risk when it is unacceptable, and remediation isn’t an option
- Transfer risk to someone else, usually through insurance and/or contractual language
- Mitigate risk when it is unacceptable – take security measures that will reduce or eliminate the risk.
Final Thoughts
Risk management best practices should be a top priority for any business. The process of risk management should be systematic and consistent across your business to ensure the efficiency and reliability of results. It should also be based on the best available information. It’s also essential to implement the best practices into your vendor risk management program. This way, you’ll set the stage for a great foundation.