Modern business operations have become synonymous with outsourcing to vendors, as essentially every business relies on at least a few third-party partnerships to improve efficiency and enhance capabilities. However, these partnerships also present various cybersecurity risks that can negatively impact an organization’s performance, reputation, and compliance with industry regulations and standards. To mitigate these risks, organizations must develop a robust Vendor Risk Management (VRM) process.
This article will guide you through creating an effective VRM process, covering the importance, benefits, and lifecycle of essential VRM strategies and procedures. You’ll also learn how VRM tools, like UpGuard Vendor Risk, assist organizations in managing vendor risks.
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What is Vendor Risk Management?
Vendor Risk Management is the practice organizations use to identify, assess, mitigate, and remediate risks associated with third-party vendors. Vendor risks can range from cybersecurity threats, like data breaches and cyber attacks, to non-compliance violations and operational disruptions. An effective VRM program ensures potential vendors meet an organization’s security standards and do not pose unnecessary or unacceptable cyber risks to the business.
Effective vendor risk management involves evaluating new vendors throughout the entire vendor lifecycle. This continuous cycle includes conducting initial risk assessments during the onboarding process, security monitoring throughout the contract period, and periodic re-evaluations based on the vendor’s cyber hygiene, incident history, and criticality to the business.
What risks does VRM help mitigate?
An effective VRM program helps manage various types of risks organizations inherent from the third-party vendors they conduct business with. VRM is essential to reduce an organization’s risk exposure and risk likelihood. These risks include:
- Cybersecurity risks
- Operational risk
- Financial risks
- Reputational risks
Why is Vendor Risk Management Important?
VRM is essential for all organizations conducting business with third-party vendors because data breaches, cyber attacks, and compliance requirements are more prevalent than ever before. x
Here are a few specific reasons why VRM could be important for you:
- Data privacy and protection: Vendors often access sensitive data to carry out their functions, and a breach on their end can compromise your organization.
- Regulatory requirements: Industry regulations are strict, and your organization could become non-compliant due to vendor negligence.
- Business continuity: Any disruption can halt your operations, especially if it happens to a critical third-party vendor.
- Reputation management: A vendor’s failure can reflect poorly on your organization, damaging trust with your customers and your brand’s reputation.
Vendor Risk Management Benefits
The primary benefits of establishing a vendor risk management plan include:
- Enhanced security: By continuously monitoring your third-party attack surface, you can identify negligent vendors and address information security concerns and other security risks before significant issues arise.
- Industry compliance: A structured VRM process helps ensure your vendors comply with all relevant regulatory compliance laws (GDPR, HIPAA, NIST, SOC, etc), reducing compliance risk and the likelihood of penalties and legal action.
- Operational efficiency: By understanding the inherent security risks of forming business relationships with specific vendors, your organization can further protect itself from disruptions and ensure operations carry out smoothly.
- Improved decision-making: An effective VRM program will provide insights into a vendor’s incident history, performance, and risk levels over time, aiding in better decision-making in vendor selection and further management protocols.
What is the Vendor Risk Management Lifecycle?
The vendor risk management lifecycle (VRM lifecycle) is an end-to-end system that categorizes VRM or third-party risk management processes into three primary phases: vendor onboarding, ongoing risk management, and continuous monitoring. This organized lifecycle simplifies the VRM process, empowering security teams and organizations to proactively identify, manage, and remediate security issues across their entire vendor network.
Each of the three primary phases of the VRM lifecycle included several secondary stages or processes. Here’s an overview of the three main phases and their respective processes:
- Stage 1: Vendor onboarding
- Vendor procurement
- Vendor due diligence
- Initial risk assessment
- Vendor tiering
- Vendor classification
- Stage 2: Vendor risk management
- Regular security audits
- Risk mitigation plans
- Incident response
- Stage 3: Ongoing monitoring
- Continuous security monitoring
- Performance reviews
- Contract management
- Vendor offboarding
Related reading: What is the Vendor Risk Management Lifecycle?
Vendor risk management process flow
An effective VRM program is crucial for safeguarding sensitive information and preventing severe cyber attacks and devastating data breaches. The vendor risk management process flow, sometimes also referred to as the vendor risk management lifecycle, involves identifying, assessing, and mitigating risks associated with third-party vendors. By constructing a structured process for holistic VRM, organizations can ensure continuous monitoring, compliance, and security, ultimately reducing vendor vulnerabilities and liabilities and enhancing security across their third-party attack surface.
Creating an effective VRM process involves many steps, which can be visualized in a continuous flow, from vendor identification to offboarding:
- Step 1: Identify vendors your organization relies on
- Step 2: Conduct initial risk assessment
- Step 3: Classify and tier vendors
- Step 4: Develop risk mitigation plans
- Step 5: Monitor vendor performance
- Step 6: Periodic risk assessments
- Step 7: Continually improve VRM program
- Step 8: Document and report vendor performance
- Step 9: Offboard vendors securely
Step 1: Identify vendors your organization relies on
Start by listing all vendors your organization depends on. Include every vendor, from software providers to outsourced services. This comprehensive inventory helps in understanding the vendor landscape and sets the foundation for assessing associated risks and effectively managing vendor relationships.
Step 2: Conduct initial risk assessment
Evaluate each vendor based on their access to sensitive data and critical systems. Assess potential risks, including financial, operational, and cybersecurity threats. This initial assessment helps prioritize vendors that require immediate attention and establish a baseline for ongoing risk management.
Step 3: Classify and tier vendors
Categorize vendors based on the level of risk they pose to your organization. Create tiers to differentiate between high, medium, and low-risk vendors. This classification allows for tailored risk management strategies, ensuring that high-risk vendors receive the necessary scrutiny and controls.
Step 4: Develop risk mitigation plans
For each vendor, create a risk mitigation plan that addresses identified risks. This plan should include specific actions, timelines, and responsible parties. Effective risk mitigation strategies can involve implementing security controls, conducting regular audits, and establishing clear communication channels.
Step 5: Monitor vendor performance
Continuously track vendor performance to ensure compliance with security standards and contractual obligations. Use key performance indicators (KPIs) to measure their effectiveness and address any issues promptly. Regular monitoring helps maintain a secure and resilient vendor ecosystem.
Step 6: Periodic risk assessments
Conduct regular risk assessments to identify new risks and evaluate changes in existing risks. This ongoing evaluation ensures that risk management strategies remain relevant and effective. Periodic assessments help in adapting to evolving threats and maintaining a proactive security posture.
Step 7: Continually improve VRM program
Continuously refine your vendor risk management program by incorporating feedback and lessons learned. Stay updated with industry best practices and emerging threats. By fostering a culture of continuous improvement, your organization can enhance its ability to manage vendor-related risks effectively.
Step 8: Document and report vendor performance
Maintain detailed records of vendor assessments, service level agreements, risk mitigation efforts, and performance metrics. Regularly report these findings to stakeholders, including executive management and relevant departments. Transparent documentation and reporting ensure accountability and facilitate informed decision-making.
Step 9: Offboard vendors securely
When terminating a vendor contract, ensure secure offboarding to protect sensitive data and systems. Follow a structured process to revoke access, retrieve company assets, and finalize outstanding issues. Secure offboarding minimizes residual risks and safeguards organizational security.
How UpGuard helps you manage vendor risk
UpGuard is an industry-leading provider of vendor, supply chain, and third-party risk management solutions. UpGuard Vendor Risk grants security teams complete visibility over their vendor network, identifying emerging threats, providing robust remediation workflows, and increasing cyber hygiene and security posture in one intuitive workflow.
Here’s what a few UpGuard customers have said about their experience using UpGuard Vendor Risk:
- iDeals: "In terms of pure security improvement across our company, we now complete hundreds of maintenance tickets, which is a massive advancement we couldn’t have achieved without UpGuard. We previously wouldn’t have detected at least 10% of those tickets, so UpGuard has enabled us to work faster by detecting issues quickly and providing detailed information to remediate these issues."
- Built Technologies: “UpGuard is phenomenal. We’re required to do an annual internal review of all third-party vendors. We have an ongoing continuous review with UpGuard through its automated scanning and security scoring system.”
- Tech Mahindra: “It becomes easy to monitor hundreds of service providers on the UpGuard platform with instant email notifications if the vendor’s score drops below the threshold set based on risk scores.”
These and other UpGuard customers have elevated their TPRM programs with UpGuard Vendor Risk’s powerful features and tools:
- Vendor risk assessments: Fast, accurate, and comprehensive view of your vendors’ security posture
- Security ratings: Objective, data-driven measurements of an organization’s cyber hygiene
- Security questionnaires: Flexible questionnaires that accelerate the assessment process using automation and provide deep insights into a vendor’s security
- Reports library: Tailor-made templates that support security performance communication to executive-level stakeholders
- Risk mitigation workflows: Comprehensive workflows to streamline risk management measures and improve overall security posture
- Integrations: Application integrations for Jira, Slack, ServiceNow, and over 4,000 additional apps with Zapier, plus customizable API calls
- Data leak protection: Protect your brand, intellectual property, and customer data with timely detection of data leaks and avoid data breaches
- 24/7 continuous monitoring: Real-time notifications and new risk updates using accurate supplier data
- Attack surface reduction: Reduce your third and fourth-party attack surface by discovering exploitable vulnerabilities and domains at risk of typosquatting
- Trust Page: Eliminate having to answer security questionnaires by creating an UpGuard Trust Page
- Intuitive design: Easy-to-use first-party dashboards
- World-class customer service: Plan-based access to professional cybersecurity personnel that can help you get the most out of UpGuard
