Vendor Risk Management (VRM)
Vendor risk management ensures that the employment of service providers and IT suppliers poses a manageable risk of disruption. Using VRM technology, businesses can manage the risks associated with third-party suppliers (TPSs) who provide IT products and services.
Vendor Risk Management Lifecycle
The VRM lifecycle, which is also known as the third-party risk management lifecycle, consists of the following stages:
- Vendor identification
- Evaluation & selection
- Risk assessment
- Risk mitigation
- Contracting and procurement
- Reporting and record-keeping
- Ongoing monitoring
- Vendor offboarding
Also, check out the complete details about How ESG Became A Magnet Of Attracting More Business.
Steps Through Which Implement Vendor Risk Management
Implementation of a VRM program mainly depends on the size of an organisation and the scale of the vendor management program. It includes the following steps-
1. Selecting software- The first step in implementing vendor risk management involves understanding the software requirements needed in an organisation.
2. Training team- This step involves reviewing key functionality and understanding how the software can meet the organisation’s goals.
3. Building the organisation’s vendor inventory- This step involves importing an existing vendor list and configuring all the attributes related to them. Suppose the organisation does not contain the list of existing vendors. In that case, the next step is to identify the onboarding vendors. This can be done through vendor discovery assessments or a self-service portal for business users.
4. Classification of vendors- This step includes classifying all the vendors in an organisation into different tiers. These tiers are classified as-
- Tier 3 vendors: Low risk, low criticality
- Tier 2 vendors: risk, medium criticality
- Tier 1 vendors: High risk, high criticality
5. Choosing the organisation’s assessment framework- The most common industry assessment standards include:
- ISO 27001
- ISO 27701
- NIST SP 800-53
- SIG Lite and SIG Core
- CSA CAIQ
There are also standards for specific industries, like,
- HITRUST for healthcare
- HECVAT for higher education
6. Developing the organisation’s assessment methodology- When developing the organisation’s assessment processes, it’s essential to consider the following questions:
- How can we determine whether a new vendor assessment is required?
- Who should have the authority to begin a vendor assessment?
- Who looks through the assessments?
- How much work is involved in validating test results?
- Which assessments lead to risks?
- How to report gathered risks that have been flagged?
- Based on the results of the initial assessment, are additional assessments required?
- How frequently should we evaluate our vendors?
Also, get insights on the GRC & Its Statistical Importance for Organization
Many businesses will accept a vendor self-attestation (in which the vendor "attests" to the integrity of their responses) from low-risk vendors. Companies will use a more rigorous validation strategy for medium- to high-risk providers, like an onsite audit. However, many firms choose remote audits over onsite ones as the digital transition moves forward at full speed and working from home has become commonplace. Businesses must be ready for both kinds of audit managements.
7. Defining risk methodology and control framework- Every VRM programme requires a method for estimating risks. Internal definitions of the risk approach and the selected control structure are necessary for an organisation. Impact and likelihood are the axis of the risk matrix that many businesses utilise. A straightforward alternative methodology is to categorise hazards as high, medium, or low.
Check out the latest details on ServiceNow GRC, a Winning Product and a Leader in the Gartner Magic Quadrant.
8. Creating Automation Workflows & Triggers - We must consider where automation can save time while laying up various operations. Many professionals in vendor management 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.
Vendor risk management workflows vary by company. Organisations must focus on finding the most repeatable processes and tasks to streamline these workflows. Then, start setting up automation for these elements of your workflows. The team will reap time-saving benefits when more automation is deployed, even at a lower scale.
9. Building reports and dashboards- The following things can be included while designing reports and dashboards:
- 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
10. Refining program with time- Vendor risk management is a dynamic discipline. New threats and requirements are constantly emerging. This is why taking a step back from time to time is critical to determine if the organisation's program is meeting the required expectations.
Read More: Skills Required for ServiceNow Developer
Organisations Manage the Vendor Risk by Considering the Following Factors
Defining risk appetite by developing a risk appetite statement.
Managing risks related to the individual product or service offered by a vendor.
Choosing a control framework and assessment standard.
Identifying the risk types that are most important in an organisation.
Creating a vendor inventory and tracking critical attributes defined in the organisation’s business.
Classifying vendors based on the criticality.
Conducting vendor risk assessments and mitigation.
Tracking key terms in vendor contracts.
Reporting on important vendor-related metrics.
Monitoring vendor risks and performance from time to time.
Benefits of Vendor Risk Management
VRM software aids in the development and automation of vendor risk management programmes for businesses. Vendor risk software assists in onboarding, evaluating, managing, and tracking third parties over time. While also preserving sufficient records to prove compliance. Automation offers a quick return on investment when using VRM software. Software for vendor risk management has further advantages such as:
- Increased security
- Increased consumer trust
- More incredible time and cost savings
- Reduced repetitive work
- Better vendor visibility
- Streamlined vendor evaluation and onboarding
- Faster risk assessments
- Improved reporting and analytics
- Simplified record-keeping
- Reduced risks associated with vendors
- Improved vendor relationships and performance
- Less time spent on spreadsheets
A good vendor risk management program ensures that:
- Addressing future risks takes less time and few resources
- Accountability is understood by both the company and the vendor
- The quality of the services owned by the company is not damaged
- Helps in cost reduction
- Availability of services is improved
- Helps to focus on the core business function
- Operational and financial efficiencies are secured
- Third-party security risks are reduced if everyone follows the plan
Companies can consider the factors discussed above to manage vendor risk and can benefit from VRM software. By using the Complete Guidelines to Set Up a Vendor Risk Management Program, businesses can effectively mitigate the risks associated with third-party suppliers.
Read on to learn more about how to clear off third-party risks with inMorphis and ServiceNow Vendor Risk Management.