How to Implement a Vendor Risk Management (VRM) Program
Implementing a VRM program can vary based on your business size and the number of vendors you work with. However, most businesses follow a similar process to manage vendor risks effectively.
Vendor Risk Management Lifecycle
- Vendor Identification: List all vendors.
- Evaluation & Selection: Choose reliable vendors based on risk levels.
- Risk Assessment: Assess potential risks each vendor might pose.
- Risk Mitigation: Reduce or control identified risks.
- Contracting and Procurement: Establish formal agreements.
- Reporting and Recordkeeping: Track risks and vendor performance.
- Ongoing Monitoring: Continuously check vendor performance and compliance.
- Vendor Offboarding: Properly end relationships with vendors when necessary.
Step-by-Step Process to Manage Vendor Risks
Step 1: Build Your Vendor Inventory
Start by listing all your vendors. If you don’t already have a list, you can use methods like vendor discovery or a self-service portal to onboard vendors. Classify your vendors into tiers to make it easier to manage them:
- Tier 1: High-risk, high-criticality (most important and risky)
- Tier 2: Medium risk, medium importance
- Tier 3: Low risk, low importance
Step 2: Identify and Assess Risks
Determine which vendors pose the greatest risks. Consider potential impacts like a vendor going bankrupt or a data breach. Evaluate how severe these impacts could be on your operations.
Step 3: Prioritize Risks
Use a risk map to prioritize and track risks. Classify risks as high, medium, or low based on their impact and likelihood. This will help you focus on the most urgent threats.
Step 4: Define Your Risk Methodology and Control Framework
Decide on the criteria you'll use to assess and manage risks, such as a risk matrix (impact vs. probability) or simpler categories (high, medium, low). Implement controls to address risks based on your chosen methodology.
Step 5: Refine Your Program Over Time
Vendor risk management is an ongoing process. New risks or changes in your vendors’ situations may require adjustments to your program. Regularly review and update your approach as needed.
Tips for Better Vendor Risk Assessments
A vendor risk assessment helps you evaluate the potential risks of working with a vendor. Here are some tips to improve your assessment process:
Determine Which Risks Matter Most
Focus on the risks that are most relevant to your business, such as cybersecurity, financial stability, or compliance.
Assess Products and Services Individually
Different products or services from the same vendor may have different risks. For example, using a vendor to supply office supplies might pose less risk than using them for cloud hosting.
Automate the Assessment Process
Streamline the assessment process by automating tasks like flagging risks, assigning responsibility, and triggering reassessments based on new risks.
Make It Easy for Vendors to Respond
Simplify the process for your vendors to complete assessments. Tools like automated questionnaires or risk exchange platforms can help.
Monitor and Reassess Regularly
Risks can change over time, so it’s important to regularly reassess vendors, especially when new risks emerge or significant events occur.
By following these steps and tips, you can build a solid VRM program that helps protect your business while managing third-party relationships effectively.
How can Aptien help?
The Aptien platform leverages expertise in GRC, specializing in Third-Party Risk Management, Privacy, Incident Management and many other categories to deliver an immersive security and privacy management experience. Reduce your vendor, supplier, and third-party risks with Aptien Third-Party Management software and Third-Party Risk Exchange The software enables you to run compliance checks and screen vendors. Additionally, our software empowers organizations to conduct vendor risk assessments and mitigate risks through highly customizable workflow automation. The Aptien Third-Party Risk Exchange enables businesses to access to risk analytics and control gap reports on vendors, and provides vendors with an opportunity to centralize their compliance details and promote them to thousands of Aptien n customers to easily share.
What are the benefits of vendor risk management software?
VRM software helps organizations build and automate their vendor risk management program. Ultimately, vendor risk software helps you onboard third parties, evaluate them, identify and mitigate their risks, monitor vendor changes over time, and offboard third parties when necessary – all while maintaining adequate records to demonstrate compliance. When leveraging VRM software, automation can provide a rapid return on investment (ROI). Additional benefits of vendor risk management software, include:
- Increased security
- Increased consumer trust
- Greater time and cost savings
- Reduced repetitive work
- Better vendor visibility
- Streamlined vendor evaluation and onboarding
- Faster risk assessments
- Improved reporting and analytics
- Simplified recordkeeping
- Reduced risks associated with vendors
- Improved vendor relationships and performance
- Less time spent in spreadsheets