Global Compliance with Integrity

Vendor Management

Vendor Management

Maintain High Levels Of Operating Efficiency

Companies are increasingly outsourcing critical tasks to their vendors. This practice comes with both benefits and risks. While working with a third party can save you money and help you operate more efficiently, it also creates vulnerabilities. Recent events, such as the Covid-19 pandemic, SolarWinds cyberattack, the Colonial Pipeline attack, and other ransomware breaches have made vendor-related risks abundantly clear. These events have impacted millions of businesses and their third parties – regardless of industry, company size, or country.

Outsourcing is a necessary component of running a modern business. It not only saves a business money, but it’s a simple way to take advantage of the expertise that an organisation might not currently have in-house. The downside is that if a proper vendor risk management program is not in place, relying on third parties can leave your business vulnerable.

Vendor Management Solutions

Companies are increasingly outsourcing critical tasks to their vendors. This practice comes with both benefits and risks. While working with a third party can save you money and help you operate more efficiently, it also creates vulnerabilities. Recent events, such as the Covid-19 pandemic, SolarWinds cyberattack, the Colonial Pipeline attack, and other ransomware breaches have made vendor-related risks abundantly clear. These events have impacted millions of businesses and their third parties – regardless of industry, company size, or country.

Outsourcing is a necessary component of running a modern business. It not only saves a business money, but it’s a simple way to take advantage of the expertise that an organisation might not currently have in-house. The downside is that if a proper vendor risk management program is not in place, relying on third parties can leave your business vulnerable.

Effective Vendor Risk Management Programmes

An effective VRM program can reduce the impact of disruptive events and reduce a company’s overall risk exposure. However, VRM offers far more benefits than just reducing risks. For example, businesses that have implemented a vendor risk management program can evaluate and onboard new vendors more efficiently, getting the right tools into the right peoples’ hands – faster. Additionally, a vendor risk program can give organisations the ability to monitor their vendor relationships over time, identifying new risks as they arise, as well as measuring vendor performance. There are numerous other reasons why vendor risk management is important, including the ability to: 

  • Hold vendors accountable to contracts 
  • Reduce spend by identifying redundant third parties 
  • Comply with global regulations and industry requirements 
  • Understand how data flows and who has access 
  • Track security controls and manage risk mitigation efforts 
  • Offboard vendors and maintain records for compliance

Managing Vendor Risk

There is no one-size-fits-all approach to managing vendor risk. Every company is different. Still, there are common measures that every business with a strong VRM program must take. These measures include:

  • Defining your risk appetite by developing a risk appetite statement 
  • Managing risks down to the individual product or service offered by a vendor 
  • Choosing your control framework and assessment standard
  • Identifying the risk types that are most important to your organisation 
  • Creating a vendor inventory and tracking critical attributes defined by your business 
  • Classifying your vendors based on criticality

Vendor Risk Management In 8 Steps

Implementation of a VRM program is highly dependent on the size of your organisation and scale of your vendor management program. With that said, many program implementations follow a common methodology. The Data Privacy Group’s Vendor Risk Management experts have created an 8-step approach to implement a Vendor Management program:

1

Build Your Inventory

2

Classify Your Vendors

3

Choose Your Assessment Framework

4

Develop Your Assessment Methodology

5

Define Your Risk Methodology and Control Framework

6

Create Automation Workflows & Triggers

7

Build Your Reports & Dashboards

8

Refine Your Program Over Time

Step 1

Build Your Vendor Inventory

We will import your existing vendor list (if you have one) and configure the attributes you’d like to track for each vendor. If you don’t have an existing vendor list, there are a few methods we can use to identify and onboard vendors, such as conducting vendor discovery assessments or leveraging a self-service portal for business users.

Step 2

Classify Your Vendors

With dozens, hundreds, or even thousands of vendors, it’s difficult to know which matter most. We solve this problem by classifying vendors into different tiers: 

  • Tier 1 vendors: High risk, high criticality 
  • Tier 2 vendors: Medium risk, medium criticality 
  • Tier 3 vendors: Low risk, low criticality 
Step 3

Choose Your Assessment Framework

There are many assessment standards or frameworks to choose from. There is no “right” assessment that works for everyone. However, there is likely a “right” assessment framework that works for your company and industry.

We’ll explore these standards and frameworks with you to ensure we land on the “right” framework for your company.

Common industry assessment standards:
Standards for specific industries:
Step 4

Develop Your Assessment Methodology

We will develop your assessment processes ensuring we consider the following questions:

How do we know when a new vendor assessment is required? 

Who should have the ability to launch a vendor assessment? 

How much effort do you want to put into validating assessment answers? 

Who reviews the assessments? 

Which assessment questions generate risks? 

How are flagged risks aggregated and reported on? 

Are follow-up assessments needed based on initial assessment responses? 

How often do you need to reassess your vendors? 

Will you conduct assessments yourself, or would an assessment exchange work for you? 

For low-risk vendors: We suggest a vendor self-attestation approach in which the vendor “attests” to the accuracy of their answers. 

For medium- to high-risk vendors: We suggest taking a more intensive validation approach, such as a remote audit or potentially an onsite audit. 

Step 5

Define Your Risk Methodology and Control Framework

Every VRM program needs a way to calculate risks. Your risk methodology, along with your chosen control framework, must be defined internally by your organisation. Our Vendor Risk Management experts will work with you to choose a risk strategy appropriate to your needs.

Step 6

Create Automation Workflows & Triggers

As we build your different VRM workflows, we will consider where we can apply automation to save time. We will look to add automation when:

  • Adding and onboarding new vendors
  • Measuring inherent risk and tiering vendors. 
  • Assigning risk owners and delegating required mitigation actions. 
  • Triggering vendor performance or renewal reviews. 
  • Triggering yearly vendor reassessments. 
  • Sending notifications to key stakeholders. 
  • Scheduling, running, and sharing reports. 

Every business has unique vendor risk management workflows. To streamline these workflows, we will focus on identifying the most repeatable processes and tasks. Then, begin configuring automation for these specific aspects of your workflows. As each smaller automation is added, efficiency will compound, and your team will reap the time-saving rewards. 

Step 7

Build Your Reports & Dashboards

Our Vendor Risk Management experts will work with you to define your reporting requirements and what information would be helpful to display in a dashboard.

The most straightforward metrics we often track include: 

  • Total number of vendors 
  • Vendors by risk score or level 
  • Status on all vendor risk assessments 
  • Number of expiring or expired vendor contracts 
  • Risks grouped by level (high, medium, low) 
  • Risks by stage within the risk remediation workflow 
  • Risks to your parent organisation and risks to your subsidiaries 
  • Risk history over time 
Step 8

Refine Your Program Over Time

Vendor risk management is not a static discipline. New threats and requirements are constantly emerging, which is why it’s so important to take a step back from time to time to determine if your program is still hitting the mark. We will work with you periodically to re-assess the program and fix any issues.

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