4 Big Risk Scoring Benefits
Enterprise risk scoring is paramount to enabling fast and consistent decision-making. Take the example of FICO scores for consumers. Before FICO scores, the decision to lend money was a very manual and subjective process. FICO scores take into account many consumer risk factors and combine them into a single score. Using this score, lenders can quickly determine whether the consumer has an acceptable risk profile. Or they many decide to price a loan higher to account for that higher level of risk.
Enterprise risk scoring operates in much the same fashion. By combining data from many trusted data sources, a risk score is computed for each supplier. As a result, companies save significant time and resources while gaining a common scoring system that enables better decision-making.
Enterprise risk scoring enables five activities critical to building a successful risk management program:
1. Ensures consistent decisions
Without risk scoring, risk-based decision-making would be a very subjective and emotional process. Subjectivity and emotion, and the business risk that comes from it, is eliminated when companies understand the risk score and match against their risk tolerance to make decisions.
2. Provides for faster decisions
Prior to enterprise risk scoring, significant analysis was required for each supplier to determine their risk and how it impacted the enterprise. Since risk scores are computing using data from multiple trusted sources, manual analysis is no longer required. Now companies can read a single risk score rather than spend many man-hours on investigation and reporting.
3. Enables automation and policy enforcement
Rather than reviewing each vendor’s risk finding report, risk scoring enables automation tools to highlight unacceptable risk. When a supplier scores higher than the company’s risk tolerance, automation rules can force action. For example, if a supplier exceeds a certain risk score, business rules may force employees to find an alternative supplier until the score is improved.
4. Allows vendors comparisons
Which suppliers is the lowest risk for the company? This question is difficult to answer without risk scoring, because there’s not way to determine a supplier’s risk relative to other like-suppliers. Risk scoring solves this problem in the same way FICO scores solved this problem for bankers. Those suppliers with higher risk scores are considered to have more risk than those with a lower score.
Risk scoring can be a powerful component of an effective risk management program. What are some other ways you’ve used risk scoring to manage supplier risk?
About the Author: James Christiansen is the CEO of Evantix and a global leader in information security, and he has held senior positions for some of the world’s largest companies. As the first information security officer at Visa, he created and implemented Visa’s global information security program. At General Motors, he held the position of Chief Information Security Officer (CISO) where he was responsible for global information security operations in all business units. In his role of CISO at Experian Americas, he actively participated in vendor reviews and several high profile merger & acquisition assessments.
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