SIG University Certified Third-Party Risk Management Professional (C3PRMP) program graduate Lokesh Bhatnagar provides descriptions to determine which 4th parties are material, and how to incorporate them into the post-contract phase in the lifecycle as well as effective risk monitoring and oversight.
In the increasingly interconnected global economy, organizations depend on third-party vendors and service providers to maintain efficient, competitive supply chains. Effective third-party risk management (TPRM) is vital to safeguard organizations against financial, operational, and reputational damage. However, many TPRM strategies often overlook the risks posed by fourth-party subcontractors, particularly those that are material to the organization.
Understanding Materiality in Fourth-Party Risk
Before delving into the management of fourth-party risk, it is essential to grasp the concept of materiality. A material subcontractor is one whose failure or poor performance could significantly impact an organization's operations, reputation, or regulatory compliance. Factors contributing to a subcontractor's materiality include:
Sensitive data handling: Assess the risk associated with subcontractors managing confidential information, as they pose a higher risk of data breaches or misuse.
Impact on third-party service delivery: Evaluate how a subcontractor's performance could impair a third party's ability to deliver contracted products or services, possibly leading to operational disruptions.
Lokesh Bhatnagar, Senior Service Delivery Leader, American Express