How to Conduct a Successful Vendor Risk Assessment
Vendor risk management (VRM) is a process that deals with the continued management and assurance that the party vendors and services your company is using do not result in a negative impact on the business’s performance or any type of disruption to the current business workflow.
This process is meant to assist in managing and monitoring for potential risks. Part of the vendor risk management system are vendor risk assessments. Working together with your vendor risk managers will help create a complete vendor assessment and remediation lifecycle workflow.
Some tips for creating a successful risk assessment for vendor management?
- Know who your vendor risk managers are and make sure the vendor risk managers continuously make on-going updates to the vendor information over the lifetime of your relationship with them. This will also help make sure that your due diligence document requirements are known and monitored.
- Make sure you have all vendor contact information including email addresses and locations. This is an important piece of information in your risk assessment process.
- Create risk assessment templates, questionnaires, and document request templates based on your company policies.
- Once assessments are completed, they should be recorded and made available to the risk analyst for review.
- Pay attention to industry standards such as the International Standards Organization (ISO), which offers guidance for creating ideal business practices and regulatory compliance.
- This will also provide an opportune time to get a list of all vendors from the Accounts Payable department to make sure a vendor is not missed and that you are not looking into someone who is no longer providing services for your company.
Vendor risk assessments
A vendor risk assessment or a risk review will help you evaluate the potential risks that could arise from using a product or service from a specific company. Vendor risk assessments give a company the ability to sort their vendors into groups based on the types of services they provide (e.g. processors, marketing, maintenance, cloud storage, etc.).
Through creating a risk assessment process and evaluating risk and compliance management, each vendor is given a rating and a full assessment template allows for future assessments and compliance controls. This creates a great foundation for all future relationships and automation into risk management solutions, ongoing risk monitoring, and security controls.
Questions to consider when creating your initial vendor risk assessment process:
- Who are the vendors that are the most critical to your business and business operations?
- This provides a chance to determine what the due diligence requirements might be and who should be categorized as critical vs. high risk.
- What are the requirements for regulatory compliance?
- How are you currently monitoring financial news, data security breaches, SEC filings, et cetera?
- What types of information are your vendors required to gather, convey, and store on their own?
- Will any of the vendors have access to your servers, systems, networks, and records?
- If so, what level of access will they have to your records and data?
- Are you currently tracking all of your contracts that auto-renew?
Third-party risk management
Reviewing third-party risk management and compliance management allows you to review both inherent risk and residual risk. Inherent vendor risk is the first impression of risk that a new or potential vendor poses. Residual vendor risk is the amount of risk that may remain after the inherent risk has been identified and steps have been taken to reduce the risk.
You need to conduct this in-depth review in order to understand what compliance management policies and procedures vendors have in place to mitigate and manage potential risk concerns. It also provides a chance to reach out and see if vendors are being proactive and implementing stricter security procedures to reduce risk.
Risk management allows the design of new business processes with adequate built-in risk control and containment measures for any perceived security risk or financial risk factor. Risk management is constantly evolving, so policies and procedures should be ever-evolving to allow for increases in risk complexity and to continue to challenge businesses to develop strong, fully comprehensive risk management solutions.
Ensure you have a comprehensive resource for improving your vendor management program. A robust solution should provide monitoring and evaluation features, outsourced services, and automation for processes, policies, and workflows.