Choosing a Vendor Risk Management Framework — What’s Best for You?

The three most common frameworks for vendor risk management (VRM) programs are centralized, decentralized, or hybrid. But what is the best approach for your organization?

Smaller organizations may begin with a more clear and centralized process. Decentralized frameworks are often the hallmark of larger companies but can lead to challenges. Some businesses find a hybrid approach facilitates the agility they need to maintain data across departments.

What VRM works best for your organization? Read about the benefits and challenges of centralized, decentralized, and hybrid frameworks.

Benefits and challenges

Most organizations find a centralized framework to be the most efficient and pragmatic. The problem is, collaboration can be problematic due to a lack of communication and transparency. However, the pros do outweigh the cons as a centralized approach:

  • Reduces risk
  • Saves time
  • Consolidates vendors

By contrast, a decentralized VRM framework has separate business lines and branches forming individual relationships with vendors. This approach can complicate vendor relationships in proportion to the growing number of vendors.

It lacks a single point of contact, governance, a centralized hub, and a dedicated risk management staff. It is imperative that a decentralized framework receives routine check-ups to guarantee that standards are being achieved.

Many companies instead opt for a hybrid VRM model. A hybrid approach can centralize policies and processes but then allow vendor relationship managers within the business units to execute them. Each individual business unit then provides performance metrics and scorecards to a central governance structure so that overall vendor performance can be evaluated.

What’s the best framework for your vendor risk management? It’s all about the needs of your business, naturally. Whatever choice you make, you should seek out a VRM software solution that can accommodate that framework.

You need a configurable VRM software solution to fit your framework

A VRM software solution can streamline and simplify your risk management program and keep you in compliance. An efficient solution will utilize a centralized depository for vendor contracts connected to the appropriate supporting documentation so that you can distribute information across multiple departments.

VRM software can also ensure compliance with your vendor policies through automated workflows and providing capabilities for managing, tracking, and reporting due diligence documentation, including annual updates for:

  • SSAE18/SOC reviews
  • Financial reviews
  • OFAC verifications

You should look for software with a Universal Framework Design that offers limitless possibilities for centralized policies, decentralized policies, or hybrid process frameworks. An open-framework system with pre-built configurable templates allows you to manage centrally or in a decentralized fashion while retaining centralized oversight.

That level of oversight empowers an organization to be proactive, not just reactive, in dealing with vendor risk scenarios.  Because if you’re caught on the proverbial back foot and are simply being reactive to supplier risk?  It may well be much too late.

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