Perspectives

Risk management in the real world

When monitoring third party risks, it’s important that entities focus on value creation as well as value protection.

BY Jimmy Crowley

Outsourcing is increasingly a key strategic decision for many businesses allowing them to focus on core corporate activities. However, when things go wrong in third party relationships, companies may be exposed to significant reputational, regulatory, strategic and financial risks. There are two notable recent examples of high-profile third party failures in Ireland:

  • The Central Bank of Ireland imposed fines on financial institutions in relation to the governance and control of outsourced services delivered by third parties; and
  • In 2018, a restaurant chain in the UK was forced to close more than 560 of its 900 outlets as “operational issues” at a new distribution partner left deliveries “incomplete or delayed”. This is estimated to have cost the restaurant chain in question £1 million per day in lost sales.

In 2016, the Central Bank of Ireland warned that poor management of third party relationships is putting banks at risk, citing “very serious failings” in relation to the governance of these arrangements and brandishing some cases as “astonishing”. Specific criticism related to poor management of outsourced arrangements, lack of oversight and a lack of engagement and challenge from boards.

 

This article first appeared in Accountancy Ireland.

 

Risk management in the real world
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