What is a Vendor Framework?

Learn how to create the best third-party vendor risk management framework for your business with these helpful tips from the team at Reciprocity.

For a large majority of businesses, third-party vendors are becoming a more and more essential part of the business ecosystem. In fact, a study by Gartner found that in 2019, 60 percent of organizations worked with more than 1,000 third parties.

As those networks continue to grow, so too will the cybersecurity threats that third-party vendor relationships pose to your business. Today, vendors, partners, and contractors all have unprecedented access to sensitive data and systems across the supply chain.

If your organization owns sensitive data and has third-party vendor relationships, it’s critical that you develop and use a robust third-party vendor risk management framework to combat the increasingly sophisticated threats of today’s risk landscape.

A vendor management framework is the system you’ll typically use to develop a vendor management program. This will include recommendations for creating the program, acquiring and divesting vendors, managing vendors, and determining and communicating the value each vendor brings. It will also define the processes and procedures that must be followed to assess, monitor, and mitigate third-party vendor cyber risk.

An important component of vendor management is vendor risk management (VRM), which is the process of identifying, analyzing, monitoring and mitigating risks that third-party vendors might pose to your business. These risks could potentially affect your business’ cybersecurity, regulatory compliance, business continuity, or organizational reputation.

Ideally, a VRM framework is something you develop before you put any vendor risk management technologies or tools into place. In this way, a vendor framework is a proactive step towards defining and optimizing your overall vendor risk management program.

In this article we’ll take a closer look at third-party vendor risk management frameworks, learn why they’re important, and introduce the components you should consider when creating your own vendor framework.

Benefits of Creating a Vendor Framework

As with any risk management program, vendor risk management begins with due diligence before signing a contract. It also involves conducting a vendor risk assessment for each contractor, vendor, supplier, and service provider with which your company works.

The vendor management lifecycle allows organizations to recognize the importance of their vendors and incorporate them into their procurement strategies. Ultimately, companies that have stronger vendor relationships are better able to manage their supply chains.

For this reason, a growing number of businesses either already have a vendor risk management program, or they’re starting one.

While growing concerns over information security and data privacy are the main drivers behind this change, so are laws such as the European Union’s General Data Protection Regulation (GDPR). These laws require organizations to demonstrate an understanding of how the third parties with whom they do business manage their own risks, and mandate third-party compliance as a condition of certification.

Regardless of any laws that might require using a framework for compliance, creating and using a vendor framework ultimately makes the process of vendor management much easier for your organization anyway. Clearly outlining the policies and processes for each stage in the vendor management lifecycle will allow your organization to better address any issues as they arise, and to protect itself against any disruptions when they (inevitably) occur.

Wherever your organization stands in the process, a successful vendor risk management program must begin with a solid vendor framework at its foundation.

Components of a Vendor Framework

The precise components that make up your vendor framework will depend on the specific needs of your organization. Here, we’ve provided some basic components that can be applied to a vendor framework in any industry and should be included if you want it to be successful.

A Solid Foundation

The third-party vendor risk management framework you use will define the processes and procedures you’ll follow to assess, monitor, and mitigate third-party risk. Before you start from scratch, however, you should first examine and consider some of the vendor cyber risk management frameworks that already exist.

A useful starting point is the National Institute of Standards and Technology (NIST) Cybersecurity Framework. This framework is the foundation for most of the emerging cybersecurity regulations. It outlines standards, guidelines, and best practices for defining controls and managing cybersecurity risk in your own organization and across third-party vendor relationships.

You should also consider the ISO 27001 information security management certification. ISO 27001 is a popular international standard for validating a cybersecurity program. It’s also a great way of assessing all the different components of your vendor’s security program: if a vendor you work with has ISO 27001 certification, it’s a good indication that the vendor has a comprehensive and successful cybersecurity program.

These are just two examples, but there are many well-known best practices and established frameworks already in place; it’s not necessary to create your own from scratch. At the same time, leaning on standard approaches and terminology that your vendors already use or recognize (as opposed to a custom framework) will make the vendor cyber risk assessment and management process much easier long-term.

Room to Scale

It’s critical that your third-party vendor risk management framework anticipates the shifting nature of third-party relationships. Traditional third-party risk management programs tend to focus on fixed points in the relationship lifecycle, such as the pre-contract due diligence phase.

Unfortunately, this approach fails to capture any risks that may arise due to a change in scope, personnel, or strategy. Additionally, Gartner’s study also found that 83 percent of legal and compliance leaders identified third-party risks after due diligence and before recertification.

To account for this flux in risk, you should build policies and processes that allow you to assess and monitor risk continuously over the course of the entire vendor relationship. With their research, Gartner recommends using data-driven methodologies to determine the most critical risks and streamline vendor due diligence.

Considerations for Compliance

You’ll also need to factor compliance into your vendor risk management framework. Certain sectors are subject to strict third-party cybersecurity risk management regulations. For example, in the healthcare industry, continuous third-party compliance with HIPAA and HITRUST must be addressed by the framework.

In industries that classify (or “tier”) vendors by risk, such as the financial services sector, separate policies and procedures must be incorporated into the framework to address high-, medium-, and low-risk third parties.

Depending on your industry and the risks you address, the frameworks we’ve mentioned above can provide you with a foundation that can be augmented to meet the specific needs of your organization.

Realistic Expectations

When creating your vendor framework, it’s important not to go overboard. An overly complicated framework can be hard to govern and enforce. This is especially true if your organization is decentralized and you depend on different teams and business units to keep these processes and frameworks in place.

As your third-party network expands, your vendor framework should provide a critical foundation that integrates security and risk management into your vendor relationship lifecycle. With your framework as your guide, you will be better informed about where your highest security risks lie so you can make more informed decisions about managing risks for the long-term.

Specific Policies and Processes

Ultimately your vendor framework should provide guidance for your organization during every stage of the vendor management lifecycle.

From sourcing and procurement to onboarding, your vendor framework needs to be as specific as possible about each stage in the vendor management lifecycle without overwhelming the document with information.

It should lay out the policies and processes for each of the following stages of the vendor management lifecycle:

• Vendor identification. This step involves shortlisting potential vendors. Your vendor framework should detail how you will evaluate, choose, and enter into contractual agreements with vendors. It should also define the metrics for vendor evaluation.
• Vendor selection. Before you select a new vendor and enter into a contract, your organization will need to conduct due diligence to assure that the vendor is able to deliver the necessary goods or services. You also need to make sure that the vendor can comply with the necessary regulations and industry standards and that it has robust information security programs. Your vendor management framework should clearly outline the pre-contract due diligence activities your organization needs to perform before it enters into a contract with a vendor, including how you will distribute surveys and questionnaires to prospective vendors and the requirements they must meet to move forward in the relationship. Due diligence also requires that your organization conducts a thorough and ongoing risk assessment throughout the contracted period, and your vendor framework should clearly define your vendor risk assessment policies and processes so that they can be repeated.
• Vendor segmentation. This step involves classifying each shortlisted vendor according to certain metrics, such as lifecycle cost, availability, quality of goods and services, and support. This is another opportunity for your framework to specifically describe how you will classify your vendors during this stage. Define which metrics you will use and how they will determine whether a vendor meets the requirements.
• Vendor onboarding. You’ll need to gather all the documents and data necessary to add a vendor to the approved vendor list. This process is called vendor onboarding, and it’s best that your vendor framework clearly outlines how it should be done. Determine which documents you need, where they should be kept, and how often they need to be reviewed or updated.
• Vendor performance management. Now it’s time to analyze and measure how your vendor is performing throughout the contract, to track and eliminate any vendor risks. Your vendor framework should provide you with the benchmarks you’ll use to determine whether your vendors are performing up to standards, and what you can do to eliminate any risks they might pose to your organization.
• Vendor information management. This step involves collecting data from each step in the vendor lifecycle from onboarding to offboarding. Your vendor framework should determine which information is collected, how it’s collected, where it’s kept, and how often it should be updated.
• Vendor relationship management. Identifying key vendors and cultivating long-term relationships with them is important if you want your business to succeed and scale. Your vendor framework should describe what methods you’ll use to cultivate these relationships, including how you should determine which vendor relationships are worth cultivating.
• Vendor contract management. This involves handling all aspects of vendor agreements, from start to finish. Your vendor framework should describe, in detail, how you will manage the contracts with your vendors from onboarding to offboarding and every stage in between. For example, your framework should tell you exactly what to do if one of your vendors breaches a contract and what the next steps will be.
• Vendor offboarding. Once you’re ready to remove a vendor from finance and administrative records after the end of your vendor contract or vendor relationship, you’ll need to make sure that you follow strict vendor off-boarding policies and processes. This step is important because you need to ensure that vendors who have been off-boarded don’t have access to your data after the relationship ends.

Tools to Help

Technology is becoming a key part of the vendor management lifecycle as organizations are able to accomplish more with less by implementing automation. To stay competitive and get the most out of your vendor relationships, it’s critical that you’re open to adopting new technology to streamline your vendor framework, and ultimately, your vendor management process.

ZenGRC Offers Vendor Risk Management Solutions

Once you’ve onboarded a vendor, the task of keeping tabs on their security is only just beginning. You’ll need to send self-assessment questionnaires, obtain penetration testing results, continually update your vendor data, and more.

A vendor management solution will allow your organization to improve your vendor relationships throughout the vendor management lifecycle (in addition to helping you reduce risks and save money). The ideal vendor management system should help your company carry out your unique business goals and procurement needs.

Using ZenGRC from Reciprocity to manage your third-party vendors takes the hassle and the worry out of vendor risk management. Its continuous monitoring features ensure you’re always on top of your third-parties’ compliance hygiene. It streamlines workflows so you don’t have to do everything yourself. It will even send out questionnaires for you and tally the results as they come in.

Zen keeps track of vendors’ compliance with multiple frameworks and provides unlimited audits in just a few clicks via its internal audit feature. Its user-friendly dashboards show you at a glance who among your third parties is compliant and who isn’t.

With ZenGRC automating your vendor risk management, you and your team can focus on other, more important tasks.

Find out if ZenGRC is right for you and sign up for a free demo today. That’s vendor risk management, the Zen way.