What is Vendor Risk Management?

Vendor risk management is about identifying and mitigating risks from your third party vendors to ensure business continuity and compliance.

This post has got you covered with practical tips to improve your vendor risk management in 2024, ensuring you have an effective vendor risk management program to protect against disruptions, data breaches, and regulatory issues.

The Concept of Vendor Risk Management

The systematic process of managing and monitoring security risks is what defines the vendor risk management process (VRM). These risks come from third party vendors, IT suppliers and cloud solutions. It means ensuring that these external partners meet both internal and regulatory compliance standards so you can protect the business from potential vulnerabilities.

Continuous third party attack surface monitoring and thorough risk assessments are part of a good vendor risk management framework. These will help mitigate business disruptions caused by security lapses.

A good VRM plan includes:

• Managing third party security risks
• Fast tracking remediation
• Clearly defining the behaviors, access levels and service agreements between the organization and its vendors

To protect the business from financial loss you need to have a mature VRM framework. A Vendor Risk Management Maturity Model (VRMMM) can assess the maturity of a third party risk management program holistically across cybersecurity, IT, data security and business resilience controls. And with the size of the Vendor Risk Management Market being estimated at 11 billion dollars in 2024, making sure vendor risks are mitigated are a must.

Types of Vendor Risks

Organizations face many types of vendor risks, each of which can cause significant disruption. These are:

• Financial risks: negative impact on the organization’s financial performance due to poor supply chain management
• Compliance risks: third parties impacting compliance to local laws, standards and contractual obligations
• Cyber risks: exposure to cyber attacks, data breaches and inadequate security
• Reputational risk: damage to the organization’s image due to a vendor’s poor service or legal issues
• Operational risks: disruption to business operations managed through service level agreements.

Other key risks are:

• Business continuity risk, which is caused by external events like natural disasters or cyber attacks that affects a vendor’s ability to operate
• Geopolitical risk, which is vendors in unstable regions
• Strategic risk, which is when a vendor’s actions don’t align with the organization’s strategic objectives
• Concentration risk, which is the risk of relying too much on a single vendor and creating a single point of failure

You need to understand these risks to have a good vendor risk management program, which is why vendor risk management is important.

Why Vendor Risk Management

To mitigate risks, you need to have solid vendor risk management programs. These programs help protect business continuity, compliance, and reputation in the industry. By identifying vulnerabilities, having contingency plans, and good threat intelligence in place, vendor risk management programs will protect against disruptions that can stop operations. A good VRM program will save you time and money and reduce frustration by dealing with disruptions and evaluating new vendors.

As digital transformation and SaaS adoption expand the attack surface, organizations need to be aware of these new risks to protect their reputation. A good VRM program covers many cyber threats, so it’s key to managing and monitoring risks from third-party vendors and service providers. This is especially important in regulated industries like financial services and healthcare, where third parties are providing mission-critical services.

Some of the key components of a good VRM program are:

• Third party risk assessment
• Defining policies and procedures for vendor risk management
• Monitoring and evaluating vendor performance and compliance
• Strong contract management
• Incident response plan for vendor security breaches
• Ongoing training and education for employees on vendor risk management

Regular reporting to executive teams helps to put VRM in the context of the overall organization.

How to Implement a Vendor Risk Management Program

Several steps are involved in implementing a Vendor Risk Management (VRM) program. First you need to choose the right vendor risk management software to automate assessments, streamline processes and improve overall efficiency. The software must be suited to the size and scale of the organization to meet your specific needs.

And you need to build a vendor inventory to list all vendors and categorize them by risk level and importance to the organization. Risk assessments will help you identify and evaluate the risks so you can make informed decisions and mitigate the risks.

Continuous monitoring and reporting is required to maintain a healthy vendor security posture and deal with emerging risks in real-time.

These are the building blocks of a good VRM program so vendor risks are managed actively and efficiently.

Vendor Inventory

A good VRM program starts with building a vendor inventory. This involves:

• Listing all vendors
• Categorizing them by risk level and importance to the organization
• Identifying attack vectors including risks introduced by fourth parties
• Having a complete view of the vendor landscape
• Measuring the risk each vendor introduces
• Prioritizing risk management accordingly

This requires a vendor inventory.

Vendor risk management starts with a solid base and that base is built on a thorough vendor inventory. By documenting all vendors systematically, organizations can manage vendor risks, comply and have a strong security posture.

Vendor Risk Assessments

Any VRM program relies on conducting risk assessments of vendors. These assessments will help you identify and evaluate the risks of working with a vendor so you can make informed decisions. Defining risk tolerance is key as it will help you set thresholds for third party risk exposure and guide your risk mitigation strategy.

Vendor risk assessments will involve detailed questionnaires for current and future vendors to identify risks and determine if the benefits outweigh the risks of working with them. Tools like vendor risk management matrices will calculate risk scores, assign risk scores and determine what actions to take to mitigate the risks. By going through a thorough vendor risk assessment process and using a vendor risk management checklist you can manage vendor risks actively.

Continuous Monitoring and Reporting

To maintain a healthy vendor security posture continuous monitoring and reporting is key. Regular assessments and ongoing monitoring will help you identify and reduce third party risks quickly and ask for remediation before they get out of control.

Continuous monitoring involves:

• Managing vendor performance
• Identifying and dealing with risks due to increased regulatory expectations
• Ensuring vendors meet agreed standards.

Advanced VRM software solutions will give you:

• Real time visibility of vendor security posture
• Instant detection of data breaches and other vulnerabilities
• Real time cyber and business monitoring intelligence
• Auditing
• Maintenance of a robust VRM program
• Compliance with regulatory requirements

Vendor Risk Management Best Practices

A VRM program can be made more effective by following best practices for vendor risk management. Having a dedicated VRM committee with senior management representation will provide strategic oversight and drive VRM initiatives. Having clear policies and open communication with vendors will reduce miscommunication and proactively deal with potential issues.

Automating VRM with software will give you accountability, better service and cost savings. Continuous and intelligent automation will do this over time. Plus having a systematic vendor assessment process with questionnaires will reduce operational overhead and ensure security compliance.

Automating VRM

You can improve efficiency and streamline workflows by automating vendor risk management with software. Automated VRM will give you:

• Categorize vendors by risk so you can prioritize remediation and have more effective risk management processes
• Manage tasks such as onboarding, assessment and review, reduce manual effort and errors
• Visibility into vendor performance

By using automation tools you can improve your VRM and have a more efficient process.

Advanced automation tools will give you:

• Real time monitoring
• Non-intrusive security posture measurement through security ratings
• Automation of manual tasks
• Better risk mitigation
• Vendor optimisation
• Streamlined VRM program

Vendor Relationships

To reduce miscommunication and proactively deal with potential issues, enhancing vendor relationships through open communication and transparency is key. Key metrics for managing vendor performance are clear communication channels and transparent expectations. By having open dialogue you can build stronger vendor relationships and better collaboration and more effective risk management.

Strong vendor relationships are built on:

• Trust
• Mutual understanding
• Communication
• Transparency

These will help you deal with potential issues before they get out of control so both parties can work together to achieve common goals and have a healthy business relationship.

Compliance and Security

Assessing vendors’ cybersecurity, data protection and compliance to relevant regulations is part of vendor risk management. Ignoring cybersecurity and data privacy risks can put an organization at risk of:

• Data breaches
• Regulatory fines
• Legal liabilities
• Reputation damage

Built in compliance reporting is key to speeding up and simplifying the compliance process so vendors meet regulatory requirements.

Unseen risks introduced by third party partners can impact the primary organization’s security so you need to monitor these relationships closely. Ensuring vendors adhere to contract terms and compliance requirements will keep security robust and reduce the risk of breaches and non compliance.

Vendor Lifecycle Management

Vendor lifecycle management is key to a comprehensive VRM. This covers all stages of a vendor relationship. Effective vendor lifecycle management starts with identifying and onboarding vendors, then ongoing evaluation and performance management and ends with the offboarding of the vendor. This will ensure all aspects of the vendor relationship are managed and risks are mitigated at every stage.

By covering all stages of the vendor lifecycle you can be prepared for any risk, from onboarding to offboarding. This is key to having a robust and effective VRM program.

Onboarding Vendors

Thorough due diligence to validate vendors’ security posture and compliance claims is part of onboarding vendors. This includes:

• Assessing financial stability, compliance and cybersecurity risks specific to each vendor
• Get tax compliance forms electronically
• Screen vendors against tax lists

Onboarding vendors correctly is key to your organization’s security and compliance.

Having clear service level agreements (SLAs) will ensure better vendor performance and remedies or penalties if they don’t meet expectations. Using a self service supplier portal will speed up the onboarding process and vendors can enter their details into the system themselves. This business critical process must be done quickly to avoid risk and have a solid foundation for the vendor relationship.

Vendor Performance

Defining performance metrics and using scorecards and performance reviews to measure and improve vendor performance is part of managing vendor performance. Continuous monitoring and assessment will ensure vendors meet agreed standards and security requirements and reduce the risk of downtime and business disruption.

By evaluating vendor performance regularly you can identify areas for improvement and take action as needed. This proactive approach will keep standards high and vendors will contribute to the organization’s goals.

Offboarding Vendors

A clean handover to new vendors, mitigate residual risk and ensure smooth transition while meeting contractual obligations is part of offboarding vendors. The offboarding process should include steps to secure systems, update credentials and delete data. Proper documentation and communication is key to ensure all contractual obligations are met and for a smooth transition.

Documenting the reason for vendor exit and the process will ensure transparency and accountability so organizations can manage the offboarding process better. By mitigating residual risk and compliance organizations can protect themselves during the transition.

Vendor Breaches

A swift and coordinated response to limit damage and prevent further data loss is required to handle vendor breaches. Here’s what to do:

1. Mobilize a breach response team immediately to contain the breach and start remediation.
2. Notify law enforcement, other businesses and individuals as soon as possible so they can take protective action.
3. Create a communication plan to ensure all affected parties are informed and the organization is transparent.

Conduct a full cyber crime investigation with independent forensic investigators to determine the root cause and scope of the breach so you can be immediately targeted. Secure systems, fix vulnerabilities and monitor entry and exit points closely is part of the remediation process. Document the investigation and seek legal advice to comply with federal and state laws and preserve forensic evidence. If the vendor is at fault consider seeking damages or terminating the contract.

Vendor Risk Management Software

The entire VRM process can be streamlined, processes automated and continuous monitoring and reporting can be enabled by using vendor risk management software. Advanced VRM software offers customisable workflow automation for compliance checks, vendor screening, risk assessments and risk mitigation. These tools will categorize vendors by risk, prioritize remediation and maintain visibility of vendor performance.

Automated VRM solutions will provide real time monitoring, external attack surface scanning and targeted security testing, so you can continuously assess risk throughout the vendor lifecycle.

Comprehensive reporting will give you updates on vendor performance and emerging risk so you can make informed decisions and get a quick return on investment.

Frequently Asked Questions

What are the different types of vendor risk?

The different types of vendor risk are financial, compliance, cyber, reputational, operational, business continuity, geopolitical, strategic and concentration risk. You need to identify and manage these risks to have smooth vendor relationships and business operations.

Why VRM?

VRM is important because it will mitigate risk, business continuity, compliance and industry reputation. It’s key to overall risk mitigation and business resilience.

How do I automate VRM processes?

You can automate VRM processes with software to make it more efficient, streamline workflows and get real time visibility into vendor performance and risk. This will make your VRM program more effective.

What do I do if a vendor breaches?

Respond – Form a breach response team, notify stakeholders, investigate and remediate to secure systems and stop the breach.

Conclusion

In summary, Vendor Risk Management (VRM) is key to managing and mitigating risk from third party vendors, compliance and business continuity. By understanding the different types of vendor risk, having a VRM program and best practices organizations can protect themselves from vulnerabilities and disruptions.

The steps to implement a VRM program, building a vendor inventory, risk assessments and continuous monitoring is key to a comprehensive approach to vendor risk management.

Don’t leave your security to chance. Explore a demo of Recorded Future today to see how to improve your vendor risk intelligence and avoid cyber threats.