An Amazonian Lesson on Third Party Provider Management Risks (part 1 of 2)

Someone always loses when your provider is also your competition

James Vaughan via Compfight

We have all heard the terms outsource and co-source.  In its basic form, the words mean that organizations have entrusted parts of their operational processes to others. Sometimes this is done to save money while in other instances it allows organizations to tap into a resource of experts that they may not otherwise have exposure to.  Either way, in this marriage of sorts, it is important to understand the nature of the third party providers services and to monitor to level of service you are receiving to ensure it meets agreed upon terms and stakeholder expectations.

Remember outsource without appropriate recourse leads to a nasty divorce.

So I have a few questions for managers and auditors.
(1)  Are you aware of the third party provider risk exposure
(2)  How are you managing the risks
(3)  Auditors, are you reviewing third party provider risks as part of you integrated auditing approach

Here’s a quick noteworthy item about third party providers.

Netflix, one of the world’s most popular streaming video services, uses Amazon’s servers to stream content to customers.  Amazon has its own streaming service called Amazon Instant Video.  This service competes directly with Netflix.  At least twice in 2012, the Amazon servers caused a disruption to the Netflix service.  The last incident, Christmas Eve 2012, caused a Netflix outage that did not disrupt the Amazon service.  Now doesn’t this seem odd.  What will Netflix do?  Only time will tell.  Can Netflix appropriately manage this third party provider risks.  If so, how?  As an auditor, are you aware of and evaluating your organizations third party provider risks?

 

This is part 1 of a 2 part series.  Stay tuned for the second part which discusses third party provider controls.

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