As your company grows, outsourcing specific tasks will likely become necessary. Whether procuring materials from outside manufacturers or contracting freelancers to help your marketing efforts, third- and even fourth-party vendors have become critical relationships in any developing business.
Opening your organization to third parties has many benefits. However, it also exposes your company to new risks you may not have considered. How can you ensure your vendors are compatible with your risk management efforts?
Vendor risk management (VRM) focuses on managing and planning for third-party risk. The purpose of a VRM program is to provide a management framework to identify, measure, monitor, and mitigate the risks associated with vendor management.
A successful VRM program aims to prevent cyber attacks delivered via third-party relationships and providers through due diligence and lifecycle management. A VRM program can work with an information security program to examine third-party risk through the lens of protecting corporate assets.
Cybersecurity isn’t the only focus since companies also have strategic, legal, privacy, operational, and reputational risks to consider. Integrating VRM into an effective vendor management program can protect your company and support a positive relationship with your vendors.
How Do You Create a Vendor Management Process?
A third-party risk management program should start with the relationship between organizations. The business needs to work with IT and cybersecurity teams to establish a foundation to build a successful vendor management strategy (VMS).
The key to this foundation is understanding how the third party manages risk. During the onboarding process, both organizations must agree on an acceptable risk before the relationship proceeds to any exchange of sensitive information. Third-party vendor management programs must examine the supply chain, vendor relationships, and risk management process.
While organizations leveraging a VRM program need to assess reputational, legal, and privacy risks, many organizations begin with cybersecurity risks-since those issues help to identify the other risk areas. An effective vendor risk management program focused on cybersecurity should provide an organization with the following abilities:
Examine vendor relationships and flag those with access to sensitive systems, networks, and data. Vendors should be assigned risk ratings and scores based on reputational scoring, cybersecurity risk, and an overall risk assessment.
Ongoing third-party risk monitoring is necessary to detect potential risks in real-time. Continuous monitoring includes key performance indicators (KPIs) and key risk indicators (KRIs) to proactively identify if business objectives or data security are at risk.
A sound VRM program needs protective security controls and technologies to prevent loss. In addition, systems, networks, and data must be appropriately guarded against third-party risk.
Processes need to be in place in the event of a security incident. In most third-party risk scenarios, time is of the essence, so risk response procedures and playbooks are essential.
Organizations need a business continuity plan to return to normal business operations in a data breach. A comprehensive supply chain risk management strategy will consider staffing, processes, and technology.
Key Considerations When Developing a Vendor Risk Management Program
When developing a VRM program, consider the following factors:
- Vendor relationships should support your institution’s overall compliance requirements, business objectives, and strategic plans.
- Both parties should have sufficient staff members to oversee and manage the relationship.
- You should evaluate potential vendors based on the scope and importance of outsourced services.
- New vendors should agree to initial vendor risk assessments and ongoing vendor performance metrics throughout their relationship with your company.
- If your company is subject to government regulations (HIPAA, for example), then any contractors who access your data must comply with those regulatory requirements.
What Is the Vendor Management Lifecycle?
The vendor management lifecycle is the comprehensive approach organizations use to manage external suppliers in an organized and transparent manner. As market conditions and technologies constantly change, organizations must completely rework their traditional supplier management processes to save money and reduce risk.
The vendor management lifecycle enables companies to recognize the importance of their suppliers and incorporate them into their sourcing strategies. As a result, companies with strong relationships with suppliers can better manage their supply chains.
Typically, the lifecycle of vendor management comprises:
- Identification: Pre-screening of potential vendors
- Vendor selection: Determining whether a particular supplier can provide the required goods or services
- Segmentation: Ranking each pre-selected supplier based on specific parameters, such as life cycle cost, availability, quality of goods or services, and support
- Onboarding: Collecting all documents and data required to add a supplier to the list of approved suppliers
- Performance management: Analyzing and measuring performance metrics throughout vendor contracts to control and eliminate supplier risks
- Vendor information management: Collecting data from each step of the supplier lifecycle, from vendor onboarding to withdrawal
- Vendor risk management: Identify, analyze and mitigate supplier risks
- Vendor relationship management: Identifying critical vendors and cultivating long-term relationships with them
- Contract management: Managing all aspects of vendor contract terms and agreements from start to finish
- Disassociation and offboarding: Removal of a supplier from financial and administrative records following the termination of a contract or relationship with a supplier
What Is a Vendor Management Framework?
Vendor management is critical to any organization’s supply chain and procurement strategy. A vendor risk management framework is a set of processes and tools to help organizations effectively manage supplier relationships. The goal of a VMF is to optimize performance and minimize risk across the organization’s supplier base.
A VMF can cater to any organization’s unique demands. However, it must always be built on a solid foundation of business goals and objectives. Organizations can establish a potent tool to boost efficiency and effectiveness throughout their procurement and supply chain operations by developing a thorough VMF.
What Are the Benefits of a Vendor Risk Management Program?
The most important benefit of a VRM program is confidence. If you know you’ve done your due diligence, you’ll be able to prioritize running your business rather than minding your suppliers and service providers. In addition, this freedom will allow you to expand your organization and take on new opportunities as they arise.
Improving communication and implementing vendor performance metrics will also increase quality and output. With all parties walking in step on quality and security, you’ll be able to streamline your workflows and enhance the services you provide to customers.
Finally, a VRM program will protect you from costly breaches and incidents in the future. A little money and effort in the short-term will go a long way for future growth opportunities and profitability.
Streamline the Vendor Management Process with Reciprocity ZenRisk
Whether improving an existing vendor risk management program or starting one from scratch, Reciprocity ZenRisk’s streamlined interface can help you track risk throughout your entire organization-including third and fourth-party vendors.
Automation features and pre-loaded content from various industry frameworks enable quick implementation. ZenRisk distributes questionnaires and surveys to your vendors and automatically tallies the results for you. Workflows ensure nothing falls through the cracks.
Insightful reporting and dashboards allow you to easily share information with stakeholders and give you a clear picture of what your company needs to do to keep threats at bay.
Schedule a demo today to see how Reciprocity ZenRisk can help you manage your third-party risk.