Your Quick Guide to Vendor Risk Management
In essence, vendor risk management (VRM) deals with the monitoring and management of risks resulting from third-party suppliers and vendors of information technology products and services.
Vendor risk management and risk management assessment are designed to ensure third-party products , service providers, and IT vendors don’t cause business disruptions as well as reputational and financial damage.
As businesses increase outsourcing, vendor risk management has become a crucial part of the risk management framework. That means organisations need to make sure third-parties are properly managing data, information, and cyber security. The risks of data breaches and cyber attacks from third-party vendors should also be mitigated and identified.
While outsourcing is considered beneficial, lack of security control among vendors can expose the organisation to operational, financial, regulatory, and reputational risks. Vendor management is designed to identify and mitigate said risks.
Vendor Risk Management Plan
Vendor risk management plan is an organisational wide initiative that will outline the access, services, and behaviours that a potential vendor and company will agree on. Ideally, the document will outline essential vendor information and should be valuable to both the organisation and the third party.
In addition, it should also clearly outline how the vendor will ensure regulatory compliance and protect data from being exposed in security breaches. The relationship may be spelled out in a casual manner or with a step-by-step checklist depending on the vendor and the services they provide.
For a vendor risk management plan to be beneficial, organisations must have a clear understanding of the vendor risk assessment process. They should also be willing to work with internal audit, compliance, and legal and HR teams so the vendor risk management plan is strictly followed for both new and existing vendors.
Managing Vendor Risks
Organisations face several risks when they engage with third-parties. Vendors who handle proprietary, classified, sensitive, and confidential information on behalf of organisations are especially risky. If third-party vendors have inferior security practices, they can put organisations they work with at risk regardless of how good their internal security controls may be.
Focusing on operational risks factors like KPIs, SLAs, performance, and quality standards is often not enough. Undoubtedly the biggest risks are are reputational and financial risks like data breaches and it comes from third-party vendors.
Some samples of risks vendors can pose include:
- Compliance or legal breaches
- Health Insurance Portability and Accountability (HIPAA) breach
- Data security risks
- Information security risks
- Loss of intellectual property
One way to minimise risk is to only give vendors access to data they need to get their job done and nothing more. In addition, vendors should also be constantly measured and evaluated using a well-thought out risk management strategy.
Benefits of Vendor Risk Management
Having a good risk management program can help warrant that:
- Future risks can be effectively addressed using fewer resources and less time
- Both the organisation and the vendor can clearly understand their accountabilities
- Quality of services is not compromised
- Costs are reduced where possible
- Organisations can focus on their core business functions
- Financial and operational efficiencies are secured