Automating Third-Party Risk Management Programs

Automation Prevents Roadblocks and Drives Risk Management Efficiency

Integrating automation into your third-party risk management program may seem daunting, but given the growing complexities in accurately collecting and screening third-party data and the need for deeper due diligence, how else will you mitigate risk while reducing costs? And if not now, when?

Automation, blockchain, and artificial intelligence are all hot topics these days across all industries, and it’s no wonder why. The world we do business in is becoming more and more connected and complex, yet corporations around the world are looking to streamline expenses and drive efficiencies. Global sourcing and regulatory compliance functions face these same challenges, yet we consistently hear how corporations haven’t adopted automation in their third-party risk management programs.

The lack of automation adoption can be traced to a few core reasons. Disparate systems, out-of-date data, and inconsistent policies can all stifle a company’s ability to modernize their third-party risk management program, and companies often suffer from more than one of these. When applied effectively, automation can not only help prevent these roadblocks; it can also drive the efficiencies procurement and compliance leaders are looking for.

Align Data Systems to Improve Third-Party Risk Management

Mergers and acquisitions, legacy systems that we just can’t let go of, and reduced IT support means that multiple platforms can be involved in onboarding a new third-party relationship. The process can take weeks or even months. Disparate systems exist across all industries and in companies large and small. It can create a level of complexity in risk management that challenges even the most experienced chief procurement officers (CPOs) and chief compliance officers (CCOs). In fact, we’re often struck by how many of our customers say that disparate systems are the root cause of manual processes and excessive costs in third-party risk management programs.

It isn’t uncommon for as many as six different stakeholder groups to be involved in the onboarding and screening of a single new relationship. When you add in the different systems that each stakeholder uses, the actual steps in the process quickly become almost unmanageable. A lot of the complexity is the result of procedures that have been implemented to compensate for the lack of a single, automated workflow management tool. 

When you are able to automate onboarding workflows and leverage real-time views into the entire process, those disparate system complexities become much easier to overcome, resulting in faster, more accurate due diligence. Doing this doesn’t mean you need to rip out all of your existing systems and incur large IT costs either. But it does mean that the stakeholder group may be required to work with a new automation tool — and let go of old habits.

Why Master Data Strategies Are Essential to Risk Management

Master data is a term used consistently in the global sourcing and compliance space. Unfortunately, in our experience, few truly have a master data strategy. A few years ago, Gartner noted that, on average, companies take a $15 million annual hit attributable to poor data. That by itself is bad, but Gartner also found that 60% of companies do not measure the financial impact of poor data.

Given how quickly data changes, it’s no wonder organizations are struggling to keep up. In the next hour in the U.S., 211 business addresses will change, 12 companies will file for bankruptcy, and 13 companies will change their name. Now apply those U.S. numbers across the world, and you quickly get an idea of how — without a master data strategy — vendor masters become out-of-date and third-party risk management can become a challenge.

Why do so many corporations struggle with clean, accurate third-party data? Because, like most things, it’s all connected: Connected to the multiple disparate systems being used, connected to the manual entry of information that results in errors, and connected to the high level of inaccurate information provided via self-disclosures. An up-to-date vendor master can create that one source of truth across the entire corporation that drives efficiencies and reduces costs, while ensuring the highest accuracy in your third-party risk management program.

When automation and machine learning are brought into your master data strategy, data governance and stewardship can instantly become more standardized. Inaccurate data resulting from self-disclosed information is quickly identified, sending alerts for a closer look. The number of false positives drops, and procurement and compliance teams become more efficient. Reporting and actionable insights are more reliable and tell the full story. Most importantly, conversations can quickly evolve from the tactical onboarding of a third-party entity to intelligence-driven lifecycle management of the full relationship. 

Automated Risk Assessments Provide Consistent Onboarding Processes

Inconsistent policies and procedures across departments are another reason automation hasn’t been adopted widely. Among the number of stakeholder groups that touch the onboarding process, each does something slightly different without one consistent language across the entire process. While various departments do evaluate third-party entities for different areas of risk, that doesn’t mean automation can’t occur.

Tied to disparate systems and inconsistent data, departments like procurement, compliance and accounts payable often work in silos. Each department has its own KPIs, and the challenge becomes maintaining alignment throughout. If cross-departmental divides can be overcome, consistent policies and procedures can be implemented.

When policies and procedures are consistent and there is one universal language across the enterprise, automation of those procedures can deliver maximum cost savings to the business, and every department gains efficiencies.

Automation Doesn’t Mean Losing Control

In addition to the significant cost savings and efficiency benefits of adopting automation and AI within third-party risk management programs, additional benefits can include higher confidence in the due diligence process, faster speed to onboard, and increased cross-departmental collaboration.

Automation doesn’t mean giving up control. In fact, it gives procurement and compliance leaders more control — control that enables them to focus on ensuring their program is flexible and can scale with the evolving landscape. Control they gain by having an accurate, 360-degree view of third-party relationships. Automation gives them confidence in their programs to truly manage the entire lifecycle of a relationship.