The Perfect Vendor Risk Management Workflow
Vendor management is not a task for the faint of heart. You’re not just managing your own best practices--you’re also managing the best practices of the third-party vendors who handle your most critical information.
The good news is that the right vendor risk management workflow can make the entire process manageable.
Here’s a closer look at how to create the perfect vendor risk management workflow, broken into easy steps.
What is Vendor Risk Management?
Vendor Risk Management (VRM) is a process dealing with continued management and assurance. It deals with managing and monitoring risks to your organization from third-party vendors and IT suppliers.
This is an increasingly important process in the new world of outsourcing. These days, businesses don’t need to spend extra to do something in-house--instead, they can hire someone else to fulfill that need better than they could fulfill it themselves. The problem is that integrating their services with your system introduces a whole new element of risk.
After all, you no longer need to worry about your system alone. You also need to worry about the strength of the systems it integrates with. Oh, and your sensitive data? If your third-party vendors handle it, you also have to worry about their data management practices.
Why You Need a Risk Management Workflow
A risk management workflow is how you put the vendor management process into action.
The key to third-party risk management is contract compliance. But just because your vendors are compliant at the time of due diligence doesn’t mean you can assume they’ll always be compliant. That’s where your risk management workflow comes in.
Basically, your risk management workflow allows you to translate best practices and your third-party risk management framework into actionable tasks.
How to Set Up the Perfect Vendor Risk Management Workflow
A vendor risk management workflow comes down to the right set of company policies, business processes, and vendor KPIs, all made manageable with the right Vendor Relationship Management (VRM) solution, also called a Third-Party Risk Management (TPRM) solution.
There are plenty of bells and whistles out there. You don’t need to get lost in them. At a basic level, any good VRM solution will allow you to ask key questions about your vendor relationships and third-party risk management framework. Everything else follows from that central functionality.
Here’s how you can set up your risk management workflow to make the best use of your risk management solutions. Keep in mind that third-party risk management is constantly evolving, so policies and procedures should be updated. The process outlined here should help you get started, but you should revisit it periodically.
Develop and Refine a Process, Policy, and Procedure
One key element of your workflow is that it should be repeatable. Anyone should be able to replicate it even after your initial conversation to decide on the process. That means you need a formal, refined process, policy, and procedure, explaining how vendor risk management will be handled down to the last detail.
The best place to start is to list your process steps. You can do this by crafting your vendor management policy around the life cycle of your vendor relationships.
For example, the first step in your process is vendor acquisition. This should detail what best practices you’re looking for in a partner. From there, you would move on to things like due diligence, contract negotiation, and compliance assessments.
After that, think about the day-to-day tasks involved in managing risk. What KPIs do you need to track? What expectations does your vendor have to meet?
If you’re not sure where to begin, you can refer to some major risk management frameworks, like the NIST Risk Management Framework.
Create a Clear, Repeatable Vendor Selection Process
Vendor selection and vetting are critical to the success of your vendor relationship. As such, vetting each vendor through the same steps no matter their product or service is critical--it allows you to assess everyone by the same yardstick and establishes the same expectations across the board.
Broadly speaking, you can break your selection process into the following steps:
Gather your guiding documents
Put together a proposal evaluation team
Write your vendor selection scorecard
Select your vendor
Perform due diligence
Set contractual obligations for performance and risk management
Your goal in this process is to figure out not just what vendor can provide the best service, but also what vendor has a risk management process best aligned with your own.
Establish Your Standards
Much like a school test, your vendor management should be standardized. Standard processes across the board make it easier on both sides--your team has an easier time assessing a vendor, and your vendors are all held to the same expectations.
Standard processes for contract management should be established early, preferably when writing your risk management framework. An easy way to wrap your head around it is to think of your standards as expectations.
What do your vendors need to do to manage risk when working with you? What are acceptable metrics of success? What is considered unacceptable? What steps will be taken on your side to uphold your end of the contract? What steps will your vendors be expected to take?
Your answers to all of these questions will set the terms in your vendor contracts.
Be Proactive About Due Diligence and Ongoing Monitoring
Due diligence and risk management go hand-in-hand. From a risk management perspective, due diligence is your best chance to protect against surprises.
However, due diligence does not end when you vet a vendor for the first time. In reality, it’s an ongoing process with ongoing monitoring throughout your relationship. The best way to handle this is by being proactive.
For businesses, this usually means strategic and comprehensive compliance reviews on a regular schedule. Basically, you’re checking in with the vendor to ensure they’re still meeting expectations.
Define Your Internal Auditing Process
This is where your internal auditing process becomes critical--including the audit schedule. Your audit program is how you implement your vendor risk management program on a day-to-day basis.
Your auditing schedule is based on risk level. Medium-risk vendors, for example, can be audited every other year, but high-risk vendors should be audited annually, if not more often.
You should also have a rigorous due diligence process to guide your auditing. Basically, an auditor should be able to look at your vendor contract and risk management framework and easily understand what they need to assess to establish contract due diligence.
If in doubt, think of it as writing an audit checklist. That way, your auditor will know exactly what red flags to look for in the vendor’s practices.
Have Comprehensive & Continued Monitoring
Last but not least, give yourself a framework for continuous monitoring. Remember, third-party risks crop up all the time, which means vendor risk management is a continuous process.
Keep in mind that this monitoring is not limited to the vendor’s own risk management policies. You should also turn a critical eye to other factors that could impact risk, like the vendor’s financial health and business continuity plans. This will give you a more complete landscape to assess risk in the relationship.
Your Partner in Vendor Risk Management Success
From vendor portals to KPIs to risk assessments to routine due diligence, the right work process makes all the difference. And the right tools make your work process that much easier.
That’s where we can help. When you work with us, you get industry-leading vendor risk management solutions that always allow you to ask the right question to the right vendor at the right time.
If you’re ready to take a smarter approach to risk management, get in touch to learn how our solutions can enable and empower your security team.