Recent years have seen a dramatic rise in awareness when it comes to the risk management sphere. In response, software developers identified an opportunity to create risk management software platforms that would aid in vulnerability identification, evaluation and response. Much of this software has been specialized to target one specific type of risk: relationships with vendors, suppliers, contractors and other third-parties.
Risk-aware companies are now implementing measures to minimize risks using three types of software:
- Vendor risk management (VRM) software;
- Supplier risk management (SRM) software; and
- Third-party risk management (TPRM) software.
These three platforms have slightly different feature sets, but all share one overarching objective: to assess an individual to determine what level of risk they pose to the organization. This is achieved through four key functionalities that you’ll find in all risk management software platforms:
- Risk Identification;
- Risk Assessment;
- Risk Mitigation; and
- Vulnerability Monitoring.
This risk landscape — which may involve financial risk, operational risk, operational risk or reputational risk — is evaluated, giving way to a decision making process. An organization can opt to put special measures in place to mitigate risk. In other cases, they may opt to avoid establishing a relationship with the individual in question, instead opting to do business with another vendor, supplier or other service provider.
The right software platform can streamline these risk management and mitigation processes, but choosing the right type of software for your needs can be a challenge when it comes to Vendor Risk vs. Third-party Risk vs. Supplier Risk management software systems.
Supplier and Vendor Risk Management Software vs Third-Party Risk Management Software
When examining TPRM software vs supplier or vendor risk management software, the key difference is scope. Third-party risk management software is intended for a much broader application since TPRM encompasses any third-party who is engaged by an organization. This can include vendors, suppliers, contractors, volunteers, interns and even service providers such as a plumber or repairman.
With such a broad focus, third-party risk management software systems feature a large toolset, although it is not usually specialized to any specific type of third party as you would see with a platform that’s designed to manage risk for vendors or suppliers.
How Does Vendor Risk Management Software Work?
In the case of vendor risk management software systems, the platform is tailored for use with vendors — companies that sell a product or service. Typically, the greatest risk factor involves the individuals who perform the service or deliver the product to your company’s premises. As such, VRM software platforms tend to be outfitted with tools that are designed to evaluate and assess these individuals.
Vendor risk management software platforms include features that allow companies to monitor and track the entire engagement with a vendor, from selecting, approving and onboarding the vendor who will be working on-premises, to the conclusion of the contract. These platforms are outfitted with tools that are centered around the company’s relationship with the vendor, allowing for a comprehensive evaluation of risk — both inherent and residual/long term.
In the case of vendor risk management software vs supplier risk management software, the key difference surrounds VRM software’s focus on the individuals who are engaging with your business. In the case of a vendor, you can expect to have people working directly with your company and its systems. Those individuals represent a potential risk factor, so vendor risk management software focuses on the “people factor” and the vulnerabilities that are most likely to arise. In the case of a supplier, you generally don’t have third-parties working directly with your company and its systems. As such, supplier risk management software is designed to address other risk factors along the supply chain, such as those related to processes, financials and even reputation.
How Does Supplier Risk Management Software Work?
Where TPRM software and vendor risk management software platforms share lots of commonalities, supplier risk management software systems have some additional features and tools that are uniquely designed to address the supply chain.
SRM software systems allow users to identify risks associated with an individual supplier and the supply chain as a whole. Once risks are identified, companies can use the response planning and tracking tools to take action. There is far less focus on the risks posed by individuals in this type of software system.
One unique feature that is exclusive to supplier risk management software is the ability to evaluate risks that are related to a supplier’s geographic location. For example, a company with all of its suppliers in one fairly small geographic region incurs a high degree of risk. A single natural disaster or turmoil from a violent conflict could take out all of the company’s suppliers for a period of time, leading to a major kink in the supply chain. SRM software can be used to identify and address this sort of problem. In cases where it is not possible to modify the supply chain in a way that allows you to leverage suppliers from other regions, the software can monitor for issues in the suppliers’ geographic region so that you are in a position to take action at the first sign of trouble.
Supply chain sourcing and manufacturing-related issues account for serious risk factors in today’s increasingly-ethical, eco-friendly and socially-conscious business world. Significant reputational damage can arise if a company works with a supplier that is using damaging practices, such as exploiting farm and factory workers, employing children, testing on animals, or growing/harvesting raw materials in a damaging manner.
Supplier risk management software systems now feature tools that allow companies to evaluate and monitor a supplier to ensure that they are following ethical, human-friendly and environmentally-friendly best practices when it comes to sourcing and manufacturing their products. These tools include monitoring capabilities and alerts, which are generated when new information is gleaned.
Vendor, Supplier & Third-Party Risk Management Software Core Features
All three platforms will typically include the same core features and toolsets. Here is a look at the most common functionalities that you can expect to find in VRM, SRM and TPRM software systems.
Questionnaires – Questionnaires are completed by individuals who will be working directly with the company and its systems, whether it is remotely or on-premises. Then, an algorithm — usually powered by AI and machine learning technology — is used to evaluate the responses, assigning a risk rating to the individual based upon their questionnaire answers.
Background Checks – Risk management software systems typically include integrations with a background check platform that is used to run an initial check and subsequent periodic checks to ensure that all parties remain on the up-and-up.
Monitoring and Alerts – Risk monitoring tools are important for automating a company’s continual TPRM risk mitigation efforts. The risk landscape is constantly changing and evolving, so risk management must be approached on a rolling basis. It’s not a one-and-done kind of project. As such, the best third-party, vendor and supplier risk management platforms will include tools that can be used to monitor identified risk factors and provide alerts when an issue is identified.
Response Tracking Tools – Risk management response is usually rather complex and multi-faceted, with individuals involved from different divisions or departments. A response requires planning and strategy. TPRM software systems usually include tools that are similar to what you would find on a project management software interface. The features allow you to plan your response steps, assign tasks, collaborate on those tasks and track the progress of the response.
Risk management is a complex discipline, but a well-formulated risk management strategy and response can quite literally mean the difference between a company that thrives for many years to come and a company that is forced to close its doors due to a risk gone awry.
Managing vendors, suppliers and third-party risk requires the right tools and that’s where having the right technology becomes essential. iTech’s risk management specialists are here to help you implement the right software for your risk landscape, whether it involves suppliers, vendors, or other TPRM. We also deal in compliance and integrated risk management software systems, among others. Contact the iTech team today to discuss your risk management challenges and we’ll work to help you implement the ideal solution.