What to Know About Vendor Management Policy
Having a vendor management policy ensures that you have a strong foundation for your vendor management practice and vendor risk management (VRM) software.
An outline of at least five key steps to your vendor management process will highlight your current process and may open up areas where more steps are needed — or where the process needs to be tweaked.
Once you’ve laid out the series of steps in your current process, you’re able to add in fillers and create your policy. The policy will become a procedural document that explains each step clearly, in detail. It’s then applied as a formal process for all future vendor management users to follow as a consistent company standard.
A risk management program must be methodical and organized to be effective. Having a vendor management policy in place will go a long way in making sure your risk management software is effective.
Why your organization needs a vendor management policy
External policies are as important for your organization as internal security policies. This is required to support an understanding of the potential risks that are triggered by third party vendors.
Third party data breaches pose a significant cybersecurity risk which is why there needs to be increased regulations surrounding vendors to protect your organization and your customers.
Risk management refers to the forecasting and evaluation of financial, legal, and other negative factors that together could harm your business while identifying potential solutions or procedures to avoid or minimize their impact. Having a vendor risk management software tool that can evaluate and track third-party relationships and review the risk compliance and risk assessments for your third-party risk management framework is crucial.
Risk management software allows the design of new business processes with adequate built-in risk control and containment measures. Risk management software is constantly evolving, so policies and procedures should be ever-changing to allow for the increase in complexity and to continue to challenge businesses to develop strong, fully comprehensive risk management solutions. It should be a way for everyone to be able to avoid detrimental business risks entirely and create strong compliance management controls.
A risk assessment or risk review will help you evaluate the potential risks that could arise from using a product or service from a specific company. It is a crucial process to your ongoing monitoring and due diligence processes. The risk assessments will give you a better understanding of each vendor and their potential vendor risk to your business.
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.). This will also be an opportune time to get a list of all vendors from the Accounts Payable department to make sure a vendor isn’t missed or you’re not looking into someone who is no longer providing services to your company.
By creating a risk assessment process and evaluating risk and compliance management, you’ll assign each vendor a rating. A full assessment template can assist in future assessments and compliance controls; this creates a great foundation for all future relationships within risk management solutions, ongoing risk monitoring, and security controls.
What should your organization’s vendor management policy include?
- Service level agreements (SLAs)
- Vendor compliance standards
- Acceptable vendor controls
- Vendor liability in the event of a data breach
- Vendor review (SOC 2 report, site visits and auditing requirements)
- Termination terms
- Board or senior management oversight where needed
- Disaster recovery and established redundancies for important business functions
Share the policy
The vendor management policy should be shared with everyone in the company. This is a way to make sure that everyone is following the same policy requirements and procedures, reducing the risk of inaccurate data and duplication of services. It will also provide a platform for everyone to know their roles when it comes to compliance and risk management.
Getting input from all of the subject matter experts involved in working directly with your vendors will help ensure that the policy is accurate and sets the framework for continued implementation through your risk management software.