Modern supply chains are highly interconnected and complex. Today’s organizations leverage numerous third-party relationships to cut costs, speed up operations, and scale their businesses.
But along with these benefits, organizations have to contend with the risks, particularly cybersecurity risks. One study found that in 2020, 44% of businesses suffered a data breach caused by a third party, and a data breach can cost $3.92 million on average.
Often, breaches happen because third and fourth-party vendors have access to organizations’ critical systems and data and lack strong cybersecurity controls to secure these assets. To protect themselves, organizations need to minimize their risk exposure. For this, they must adopt vendor risk management (VRM).
According to Gartner, VRM is a process to ensure that “the use of service providers and IT suppliers does not create an unacceptable potential for business disruption or a negative impact on business performance.”
VRM – which can be considered a type of third-party risk management – is about identifying and mitigating the risks associated with vendors. These risks could be financial, reputational, operational, and most importantly, related to cybersecurity threats, attacks, and data breaches.
While VRM in itself is a critical element of any organization’s cybersecurity toolkit, the risk management process can be time-consuming and labor-intensive. Here’s where automating vendor risk management with technologies like security rating systems, automated questionnaires, and machine learning can be truly valuable.
But why and how do you automate vendor risk management? This article explains.
Why Businesses Are Turning to VRM Automation Technology
An automated vendor risk management program can help organizations streamline VRM processes and improve their ability to mitigate vendor risk. It also delivers the following benefits:
Reduced Cybersecurity Risk
Different vendors employ different cybersecurity controls to protect digital assets, and weak controls increase the cybersecurity risk to all their customers. VRM attempts to manage and mitigate this risk.
However, this process can be complex and requires a lot of manual effort. With automated VRM, organizations can eliminate such pain points, reduce their cybersecurity risk, and improve their information security posture.
Accelerate Vendor Risk Assessment
The dynamic nature of today’s supply chains means that organizations have to find ways to quickly assess the risks posed by each vendor before it becomes catastrophic.
However, a typical vendor risk assessment process can be very slow because organizations usually perform them manually with a lot of back-and-forth communication. Even so, there’s no guarantee that every vendor-related risk would be identified, much less mitigated or eliminated.
Automated VRM tools, like security ratings, quickly show a vendor’s performance and highlight the risks they bring into the organization’s network. This data-driven and automated approach enables companies to quickly assess and prioritize risks and take timely action for mitigation or remediation.
Improve Collaboration and Vendor Relationships
To successfully mitigate risks, it’s crucial to communicate risk information to the relevant vendor and ensure that they act quickly to address these risks at their end.
Manual VRM processes are cumbersome and make this collaboration difficult. Automated VRM resolves this problem, enables vendors to understand the issue, and, more importantly, does so quickly and effectively before it causes real problems for them or their customer organizations.
Supports Scalability in the Vendor Ecosystem
At a 2017 meeting of the Audit Committee Leadership Network (ACLN), Jim Connell, the chief procurement officer at JPMorgan Chase, revealed that the bank interacted with 28,000 third-party vendors at the time. Of these, 6,000 presented at least some risk, which warranted monitoring.
Not all organizations interact with such a massive number of vendors. However, many do have a continuously expanding vendor ecosystem. To manage this ecosystem and the increased risk, manual VRM is neither adequate nor appropriate.
Organizations need technology-driven automation to simplify due diligence, implement continuous monitoring, and streamline cybersecurity assessments for new vendors and potential vendors.
Companies can effectively monitor their growing vendor ecosystem, lower vendor risk, address vulnerabilities, and monitor security performance over time through automated vendor risk management tools.
Critical Elements of Vendor Risk Management Automation
Manual VRM programs are inefficient and cannot deal with the risks posed by today’s complex supply chains. By automating vendor risk management, organizations can improve their regulatory compliance posture and ensure they are working with responsible vendors. But to do this, the automated solution must be consistent, scalable, and centralized.
It must also include the below elements and capabilities:
An effective, automated VRM solution should include a robust information-gathering process. It should allow organizations to easily create and distribute customized vendor questionnaires and provide a weighted scoring system to automatically classify vendors according to cyber risk.
Business rules based on static thresholds simplify vendor risk assessments and eliminate the need for human intervention at specific decision points.
For example, suppose you ask on the vendor risk assessment, “Will you be storing customers’ personal data as part of your services?” If the vendor answers “Yes,” a rule will be triggered and drive automation to prioritize any associated red flags and cybersecurity risks.
Due Diligence Investigations
Comprehensive automated solutions should allow organizations to screen and monitor vendors against risk intelligence databases. They should be able to request, order, and store due diligence investigations and maintain a historical record of all relevant documentation and evidence chains to help with internal or external audits.
The automated tool should be capable of assigning weights to vendor responses on an assessment and calculating a single risk score. The risk score determines whether the vendor is low, medium, or high risk. A standardized assessment helps the organization determine the next appropriate action (e.g., “should we proceed with onboarding this vendor or not?”).
It can be challenging to manually build such analytical evaluations. Automated tools easily meet this requirement.
Rule-Based Workflows and Customizable Alerts
Rule-based workflows are an essential element of an automated risk management solution. They eliminate the need for manual checks and balances and allow organizations to maintain current compliance for vendors. Automated alerts also bring attention to important approvals or tasks to further strengthen the third-party risk management program.
Powered by machine learning, an automated vendor risk management software system “learns” from the actions and decisions taken by expert users. Based on this analysis and understanding, it can make similar decisions, even without an explicitly defined model.
Since there’s no need to define multiple rules or mathematical calculations, the system accelerates and strengthens third-party vendor management, risk assessments, and risk mitigation.
ZenGRC Can Be Part of Your Vendor Risk Management Plan
With a plethora of automated capabilities, compliance checklists, workflows, and dashboards, ZenGRC eliminates labor-intensive VRM tasks and easily streamlines the VRM process. With ZenGRC, organizations can simplify due diligence and automate questionnaires, surveys, and assessments.
This comprehensive risk management platform increases visibility into vendor risk through risk heat maps, dashboards, and reports. It also makes it easier to evaluate risks across connections and continuously monitor compliance-related risks with intuitive and automated alerts and workflows.
Contact Reciprocity today for a free consultation on ZenGRC.