Download now
Unless your organization is still operating on Windows 98 and fax machines, you know that it requires vendors and suppliers to run business as usual.
What’s not as well known? Every vendor comes with inherent risk, one that should be considered and accounted for by your organization. Today, one of the most underrated strengths in an organization is a dedicated risk management procedure for the organization, third parties, and vendors.
In this article, we’ll break down:
Let’s dive in.
Vendor risk management, or VRM, refers to the process of identifying, evaluating, and controlling the risks associated with third-party vendors. The aim of vendor risk management is to ensure these relationships don’t pose any significant risk to your organization's operations, reputation, or data security.
VRM requires regular communication and collaboration across your organization — sales executives and leaders, solutions engineers, security and compliance teams, operations and management — to ensure all aspects of vendor risk are addressed.
In referencing vendor risk management, the term “third party vendor” is often used in place of all external service providers to the organization. Vendors can include suppliers, contractors, partners, or any other company providing products or services to your business.
From cloud service providers and marketing agencies, to logistics companies and physical goods, third-party vendors contribute specialized expertise and resources to enhance your organization.
However, vendor risk management applies directly to the vendors and suppliers, not all external parties connected to the organization. This makes VRM a separate, but similar entity to TPRM (third party risk management).
Your organization must conduct thorough due diligence — i.e. vendor risk assessment — before onboarding new vendors and continuously monitor existing vendor relationships to mitigate potential risks effectively.
Vendor risk assessment (VRA) involves evaluating the potential risks associated with each of your vendor relationships — operations, products, and their own vendor risk profile. VRA helps you identify any vulnerabilities or weaknesses in your vendor partnerships, then take appropriate measures to mitigate or eliminate these risks.
By conducting thorough vendor risk assessments, your organization can prioritize its risk mitigation efforts, then allocate resources appropriately as part of your greater vendor risk management strategy.
To improve vendor risk, in all of its wide-reaching subjectivity, means to define and align with certain types of vendor risk relative to your organization. Vendor risk management focuses on assessing, controlling, and monitoring seven different types of risks: cybersecurity, operational, continuity, compliance, reputational, strategic, and financial.
When a vendor’s gap in security efficacy exposes your organization or your customers to threats, attacks, or breaches in sensitive information, leading to a violation of customer trust.
When a vendor’s standard business operations would be at risk should the vendor experience a system failure or decrease in capacity.
When outages, threats, or failures inhibit a vendor’s consistency in operations, leading to lapses in service for your organization.
When a vendor fails to comply with relevant laws or regulations, leading to a gap in services or legality of use for your organization.
When a vendor’s problems or issues directly or indirectly impact your brand, harming your customers’ or partners’ perception of your organization.
When a vendor’s actions or initiatives misalign with your organization’s strategy, hindering your ability to achieve certain initiatives.
When a vendor’s financial instability interferes with their ability to meet obligations and promises of their service; or a vendor’s instability threatens your organization’s value delivery, leading to financial losses.
Risk management conversations and processes for determining risk vary widely between organizations. While each vendor may carry a unique risk profile and deviate to certain risk types, any vendor is capable of exposing your organization to any of the above risks.
Whether you’re building or improving vendor risk management, it’s important to consider these framing questions first:
"If this vendor experiences an outage, how will that impact our business operations/continuity/ability to take-make-ship-bill?"
"What does this vendor provide as evidence of their security posture?"
What is informing my level of confidence in the vendor's ability to protect our information?"
Context matters when answering these — enterprises typically have a quantitative, strategically-linked VRM strategy, while some organizations may have no third-party or vendor risk management practices. Improving VRM comes with the awareness of this nuance and the varying needs between organizations.
With the framework and context set, here are the five steps we recommend taking for VRM.
☑️ Determine a way to catalog vendors that is appropriate for your needs
☑️ Take inventory of current vendors
☑️ Perform vendor risk gap analysis:
☑️ Take time to establish new, more thorough intake procedures:
☑️ Understand the types of vendor risk (from before)
☑️ Determine risk severity:
☑️ Determine risk likelihood:
☑️ Certifications/Compliance
☑️ Frameworks/Standards
☑️ Common Questionnaires
☑️ Deploy risk assessments and audits based on vendor risk profile
☑️ Check for the use of desired certifications/standards
☑️ Make the process as transparent and accessible as possible
☑️ Assign ownership for vendor risk outreach
☑️ Set workflows for monitoring, reviews, and reassessments
☑️ Outline how VRM is communicated to key stakeholders
☑️ Identify automation opportunities
☑️ Bridge security and sales teams in the VRM process
☑️ Communicate risk tolerance to your organization
☑️ Gain visibility into who can access what information
☑️ Conduct status updates from real-time due diligence
☑️ Create dashboards for vendor risk metrics
☑️ Monitor vendors over time to re-assess when needed
Vendor risk management is a part of due diligence for organizational risk mitigation. If a threat compromises one of your vendors, VRM protocols eliminate uncertainty if you need to take action (saving your organization from potential harm).
Let’s take a look at the benefits of vendor risk management.
Vendor risk management pushes your organization to consider all potential disruptions to operations. By putting contingency measures in place, your organization reduces the time needed to make decisions and uncertainty about those decisions when it matters most.
With the due diligence required in a VRM strategy, both the vendor and your organization gain a greater awareness of each other’s operating status. By establishing risk management as a priority, you build transparency into the cross-operational framework.
No matter the tolerance of your organization’s risk, service or uptime interruptions threaten your organization’s credibility. A demonstrable, proactive approach to vendor risk mitigation instills confidence in your customers, investors, and even regulatory bodies concerning your organization’s trustworthiness.
Streamlining vendor evaluation processes leads to more informed decisions about vendor selection, improving partnerships and service quality. Your organization can avoid costly disruptions and financial losses with a proper vendor risk management strategy, resulting in significant cost savings and ROI for VRM long term.
Vendor risk assessment works in part with your third-party risk management strategy. By considering the risks associated with various vendors, your organization has a more comprehensive understanding of its exposure to external risks.
Vendor risk management is a smaller, but significant part of enterprise or organizational risk management. If you’re a vendor looking to lower your risk profile or communicate the strength of your security posture for organizations conducting vendor risk assessments, a SafeBase Trust Center serves as the source of truth for all pertinent security information.
From an operational risk perspective, our risk profile cards display crucial metrics and information: RPO/RTO, cloud service providers (CSP), reliance on third-party services (supply chain risk), access control and infrastructure, etc. These cards show customers and prospects that your business is equipped to recover from impactful events and how you will communicate in the event of an emergency (with data privacy and data breach notifications).
On the proactive side of cybersecurity, our Trust Centers allow you to display documents vital to showcasing your compliance and security documentation. As a vendor, your Trust Center is customizable extensive out-of-the-box formatting options (risk profile cards) — your security posture, how you want it, all to communicate how your operations and data are secure.
With SafeBase’s update log, you’re empowered to inform your subscribers concerning any updates you deem important — alert to impact or non-impact of security incidents, potential supply chain concerns, etc.
Trust Centers are a positive signal from vendors (or as a vendor) — a transparent, accessible security information speaks to the confidence of an organization’s security posture. SafeBase makes it easy for buyers and internal audiences to self-serve security inquiries, streamline security and risk communication.
Whether a vendor uses a Trust Center or not, it shouldn’t impede your ability to improve vendor risk management. However, when you’re going through Step 3: Identify preferred vendor risk frameworks, certifications, and questionnaires, check out our customers’ Trust Centers like LinkedIn, Asana, and Jamf to see how they work in greater detail when you’re implementing vendor risk management.
SafeBase is the leading Trust Center Platform designed for friction-free security reviews. With an enterprise-grade Trust Center, SafeBase automates the security review process and transforms how companies communicate their security and trust posture.
If you want to see how fast-growing companies take back the time their teams spend on security questionnaires, create better buying experiences, and position security as the revenue-driver it is, schedule a demo.
