The majority of UK businesses are exposed to third party failure risks

Published: Friday, 07 April 2017 08:51

Over the last three years, one in three UK companies have experienced major disruption or complete failure due to the actions of outsourced providers, according to a survey on third party management from Deloitte.

The survey, examining third party governance and risk management (TPGRM), found that just 11 percent of UK companies feel equipped to deal with such failures during times of uncertainty. The global survey, which included the responses of 107 UK companies across all sectors, also found that the UK had one of the highest dependencies on outsourcers, at 80 percent.

Kristian Park, global extended enterprise risk management partner, Deloitte, said:

“This year’s survey results demonstrate that third parties are increasingly relied upon, with this trend likely to increase. Unfortunately, management processes and technology that support the oversight of these relationships are not keeping up, creating an ‘execution gap’. Whilst there is clear organizational commitment to address this, it is not being matched by the right skills, processes and technology to achieve intended results. Whilst both political and economic uncertainty has slowed investment and subsequent progress, there is greater appreciation of the related risks.”

Deloitte estimates that most large organizations take between two to three years to develop an integrated TPGRM framework.

“We predict 2017 and 2018 as the years when people will make significant strides in addressing this issue. However it will be mostly dependent on the priorities set by individual companies”, continues Park. “In the current climate, some will be focussing on issues such as where they will continue to be located, or assessing talent models, particularly during the two-year time frame in which the UK intends to depart from the European Union.”

Deloitte recently calculated that third party failure could cause shareholder losses of an average 2.55 percent or up to 10 times the regulatory fine. Historically, this has ranged from £1.3m to £35m, reaching £650m for internationally-operating firms subject to global regulation.