It’s easy for an organization to get caught up in establishing policies, workflows, and procedures for vendor risk management. Without context as to why these policies are important and stressing this to your team, many will lose sight of the primary goal of vendor risk management – to put the organization in a defensible position. An organization owes it to their customers. The goal of vendor risk management is to position the organization in a defensible position by taking inventory of all vendors, measuring how much of a risk each vendor poses, assessing each vendor objectively, and then systematically repeating this process. That’s a hefty goal, so let’s break it down.
Inventory – Taking inventory of all vendors
The first step to mitigating risk is to take inventory ofall vendors. This list includeseverything from the organization’s HVAC technician, cleaning service, insurancebroker, and even the free online software provider. These are all considered vendors, and whilenot all of them have the same access to sensitive information, many vendors willhave some access to the organization’s information either physically orotherwise. The goal of taking inventoryof your vendors is to make sure that all the vendors within an organization isaccounted for. Quite simply, you don’tknow, what you don’t know.
Classify – Measuring how much of a risk each vendor poses
Not all vendors will have access to the same amount ofinformation, but it’s important to sort your vendors into buckets. Using the same classification method puts allyour vendors into perspective, and puts the organization in a defensibleposition. The HVAC technician won’tnecessarily have the same impact as an insurance broker that has access tosensitive information. However, bothvendors pose a risk – SecurityStudio has three impact levels – high, medium, andlow. By classifying vendors objectively,the right course of action can be taken to assess them appropriately.
Assess – Assess each vendor so that the appropriate actioncan be taken
The goal of the assessment process is to make sure that theright questions are being asked, and that the same questions are being asked ofall vendors within the same bucket. Thisagain will put the organization in a more defensible position. The goal of theassessment process is to be as objective as possible and to complete duediligence. It’s important to ask thesequestions now, so that in the case of an adverse event, the organization isstill defensible. Tools, like SecurityStudio,makes it easy. SecurityStudio offers acomprehensive list of questions, and the program tags who answers the questionsand timestamps when the questions are answered.The ultimate goal of the assessment is to have an objective overview ofthe vendor’s security posture so that the organization is able to make aninformed decision to either go into business or continue doing business withthe vendor. Once the results of theassessment are given, then it’s a matter of replicating the process on aregular timely basis, or as the business relationship changes.
Now that the goal is broken down, it puts things inperspective. Yes, organizations arepressured to develop a vendor risk management program by regulatory laws, butit’s more than that. It’s just the rightthing to do. Organizations owe it tocustomers to make sure that the information they provide is secure bymitigating risk the best they can and putting themselves in a defensibleposition. This is the primary goal ofvendor risk management.
To put your goals to action and get an easy-to-use automated workflow that evaluates all third-party vendors and brings your weakest links to the surface, schedule a demo with us today!
Estimate your score or book free demo todayFAQs
A vendor risk management plan is an organizational-wide initiative that outlines the behaviors, access, and services levels that a company and a potential vendor will agree on. The document should outline key vendor information and be valuable to the organization and the third party.
What are the goals of risk management include? ›
What are the Fundamental Goals of Risk Management?
- Develop a common understanding of risk across multiple functions and business units so we can manage risk cost-effectively on an enterprise-wide basis.
- Achieve a better understanding of risk for competitive advantage.
- Build safeguards against earnings-related surprises.
A vendor risk assessment matrix highlights vendor security risks and individual vendors with the greatest potential impact on a business's security posture. This tool helps security teams understand which cybersecurity risks need to be immediately addressed and which are safe to accept.
How do you mitigate vendor risk? ›
Vendor Risk Management Best Practices in 2024
- Keep an Accurate Vendor Inventory. ...
- Create a Vendor Assessment Process. ...
- Continuously Monitor and Assess Individual Vendors. ...
- Define Vendor Performance Metrics. ...
- Monitor Fourth-Party Vendors. ...
- Plan for the Worst Case Scenario. ...
- Form a Dedicated VRM Committee. ...
- Communicate Constantly.
Strategic risk. Strategic risks arise when vendors make business decisions that do not align with your organization's strategic objectives. Strategic risk can influence compliance and reputational risk and is often a determining factor in a company's overall worth.
What should be in a vendor risk assessment? ›
These include cybersecurity, data privacy, compliance, operational, financial, and reputational risks. Conducting assessments can help you to reveal and remediate these risks throughout the vendor lifecycle.
What are the 5 risk management objectives? ›
There are five basic steps that are taken to manage risk; these steps are referred to as the risk management process. It begins with identifying risks, goes on to analyze risks, then the risk is prioritized, a solution is implemented, and finally, the risk is monitored.
What should be the primary goal of risk management? ›
Risk management is the process of identifying, measuring and treating property, liability, income, and personnel exposures to loss. The ultimate goal of risk management is the preservation of the physical and human assets of the organization for the successful continuation of its operations.
How do you identify vendor risks? ›
Background and Criminal Checks: Conduct thorough background checks on the vendor and its key personnel to assess their trustworthiness and identify any potential risks. Service Level Agreement (SLA) Assessment: Evaluate whether the vendor can meet the service levels required by your organization.
What makes a vendor high risk? ›
High-risk vendors may not adhere to legal requirements in areas such as labor practices, environmental standards, or data privacy. This can expose the organization to potential legal actions, fines, and reputational damage.
For example, unrecognized or unmitigated vendor risk can lead to data breaches, service disruption, reputation damage, regulatory fines, lost revenue and lawsuits. Ideally, conducting a risk assessment helps your organization plan to avoid, minimize or neutralize consequences when a risk materializes.
What are the types of vendor risk? ›
10 Common Types of Vendor Risks
- Strategic risk. ...
- Operational risk. ...
- Business continuity risk. ...
- Compliance and regulatory risk. ...
- Information security risk. ...
- Financial and credit risk. ...
- Reputation risk.
5 Steps to Secure Vendor Compliance
- Conduct Risk Assessments. Companies should perform multiple assessments of potential third-party risks, itemizing benefits, liabilities, costs, and more in a risk-and-reward analysis. ...
- Evaluate the Vendor. ...
- Create a Vendor Compliance Policy. ...
- Solidify a Contract. ...
- Vendor Management.
Vendor Threat Mitigation (VTM) is the process to assess and mitigate risks posed by vendors supporting DoD operations outside the United States.
What is security risk management? ›
Security Risk Management is the ongoing process of identifying these security risks and implementing plans to address them. Risk is determined by considering the likelihood that known threats will exploit vulnerabilities and the impact they have on valuable assets.
What is the difference between vendor risk and third party risk? ›
While VRM is specific to vendors, Third-Party Risk Management (TPRM) is the process of vetting all your third parties. Most organizations do business with a number of third parties, and those third parties fill many roles.
What is SOC in vendor management? ›
A system and organization controls (SOC) report is often one of the most challenging documents to review during vendor due diligence. SOC reports are available in multiple variations that serve different purposes, and they might contain confusing terms like Trust Services Criteria or management's assertion.
What is a TPRM program? ›
Third party risk management (TPRM) (also called vendor risk management or VRM) is the practice of evaluating and then mitigating the risks introduced by vendors (suppliers, third parties, or business partners) both before establishing a business relationship and during the business partnership.
