If your organization works with third-party vendors, then it is essential that you establish a vendor risk management (VRM) system. This will help you better identify and respond to vulnerabilities within your vendor ecosystem, improving third-party relationships and your overall security posture. That said, many times organizations do not get the most out of their risk management platforms due to mismanagement of time and resources.
A key element to effective third-party risk management is the development of a vendor risk management workflow. A vendor risk management workflow outlines the processes an organization follows when addressing risk as well as identifies individual employee responsibilities related to risk mitigation. This helps businesses centralize their risk management efforts, allowing them to align risk priorities with business objectives.
With a centralized platform to manage risk, organizations enhance their ability to accurately track and remediate vendor threats, bolstering their security.
What is a vendor risk management program?
A vendor risk management program is the set of documents, policies, procedures, and tools an organization uses to manage third-party risk. These programs differ between industries but typically leverage the same methodologies and solutions with regard to risk prioritization and mitigation. To help categorize risk, companies create risk appetite and tolerance statements that outline acceptable risk levels at their organization. From there, they classify vendors based on the level of risk they pose to their business. Vendor risk management workflows play a crucial role here as they outline the steps an organization should take when responding to different types of vendor risk. Common types of vendor risk include:
- Strategic risk: Strategic risk occurs when a vendor’s business decisions do not align with their parent organization’s strategic goals.
- Reputational risk: Reputational risks arise when a vendor’s actions or lack of response affect the perception of a company’s name or good standing.
- Transactional risk: Transactional risk is the risk that arises as a result of a vendor failing to meet customer expectations of a product or service.
- Operational risk: Operational risk is the risk of loss resulting from failed internal processes or systems. Third-parties often integrate with the internal processes of their parent organization, increasing overall operational complexity.
- Compliance risk: Compliance risk is the risk that arises from violations of the laws and regulations put in place by governing bodies, or to internal compliance standards.
Another key component of third-party risk management programs is the guidelines created for employee use. These documents establish a workflow by highlighting day-to-day steps employees can take to help manage third-party risk at their organization. When working to limit vendor risk, having a workflow is extremely important as it creates a system of checks and balances within an organization. In addition, having assigned roles helps streamline employee threat response, thereby limiting the impact of successful attacks.
How do you mitigate vendor risk?
Once you have classified your vendors, the next step is to assess their risk level. This is done by administering periodic vendor risk assessments. The goal of these assessments is to gauge vendor risk as it relates to your risk appetite and tolerance statements. You should also evaluate the systems your vendors have in place to monitor and eliminate risk. Next, you can create a risk management plan that highlights the individual steps your vendors must take in order to address identified risks. Based on vendor responses, you should adjust your workflow so that identified risks are prioritized and addressed.
Your plan should also include processes for ongoing third-party due diligence. This means establishing a vendor monitoring program so that you can stay up-to-date on your vendor’s risk management procedures. One example of this is having your vendors draft monthly reports that highlight emerging and exciting risks on their networks, as well as the steps they are taking to mitigate those risks. This will ensure that you have complete visibility into their risk management procedures, allowing you to provide guidance where necessary.
Three tips for improving VRM workflows
After your vendor risk management platform has been established, it is important that you continually monitor your policies in order to identify potential workflow improvements that can be made.
Here are three steps you can take to improve your vendor risk management workflows:
1. Develop risk assessment templates
Creating risk assessments is a resource-intensive task as they need to be vendor-specific. One way to expedite this process is by creating risk assessment templates. By creating assessment templates based on different vendor risk levels and regulations, you eliminate the need to create new assessments every time you want to evaluate a specific vendor’s risk. This helps streamline the vendor evaluation process, thereby improving your vendor risk management workflows.
2. Determine a VRM auditing process
Continually assessing the effectiveness of your vendor risk management program is essential to its success. To do so, you need to create an internal auditing system with controls that review vendor reports and evaluate how well your vendor risk programs align with your business goals: This will help you identify areas that need improvement. Insights gained from audits can be used to optimize vendor assessments as well as improve your due diligence process. Audit reports are also beneficial when reporting to the board as they give you a way to quantify the value of your risk management programs.
3. Integrate your VRM with other platforms
Integrating vendor information into your business program has many benefits for organizations. To begin with, it creates a centralized repository of vendor documents, helping improve visibility into vendor risk. This increased visibility also helps bolster compliance efforts as you can monitor vendor adherence with regulatory requirements.
Integrated internal risk programs also inform future contracts or operating practices during the merger and acquisition phase. Based on past assessment responses, you can more accurately assess a potential vendor’s risk level and build contracts that clearly outline vendor expectations.
How SecurityScorecard helps improve VRM workflows
To optimize your vendor risk management workflow, you need a platform that delivers valuable insights into the data you collect from vendors. SecurityScorecard’s third-party risk management solutions identify security issues across 10 risk factors and provide instant and continuous visibility into the cyber health of your third- and fourth-party vendors, in addition to your own IT infrastructure. This helps with vulnerability prioritization and enables your internal security teams and vendors to quickly identify and resolve issues.
Taking a data-centric approach to third-party risk management allows you to continuously monitor the security posture of all of your vendors while facilitating collaboration across the entire organization. As more organizations rely on vendors for business, SecurityScorecard can help develop comprehensive vendor risk workflows that allow you to take control of your vendor ecosystem.