Vendor risk management (VRM) involves identifying, assessing, and mitigating risks associated with third-party vendors. While it closely resembles third-party risk management (TPRM), it focuses on vendors and so has a comparatively narrower scope and other stark differences.
As organizations increasingly rely on external vendors for various services and products, they need to manage the potential risks from these relationships. VRM helps ensure vendors will not compromise their security, compliance, and overall operational efficiency.
Table of Contents
- Why Is Vendor Risk Management Important?
- What Are the Stages of the Vendor Risk Management Life Cycle?
- How Does Vendor Risk Management Differ from Third-Party Risk Management?
- What Are Some Vendor Risk Management Best Practices?
Vendor Risk Management: A Deep Dive
Why Is Vendor Risk Management Important?
The rise of globalization and technological advancements has led to a complex network of third-party relationships, specifically with vendors, that can enhance business capabilities and efficiency. But they can also introduce risks, including data breaches, compliance violations, operational disruptions, and reputational damage.
VRM is vital in identifying risks early and implementing strategies to mitigate them, thus safeguarding an organization’s assets and reputation.
What Are the Stages of the Vendor Risk Management Life Cycle?
The VRM life cycle comprises seven stages—vendor identification and selection, risk assessment and categorization, contract negotiation and approval, onboarding, continuous monitoring, contract renewal or termination, and offboarding.
Stage #1: Vendor Identification and Selection
Organizations should identify the need for a vendor and define the scope of services required. They must then evaluate potential vendors based on their capabilities, reputation, financial stability, and risk profile.
Stage #2: Risk Assessment and Categorization
Organizations should perform a risk assessment to determine the potential risks associated with engaging a vendor. It includes assessing the vendor’s security practices, regulatory compliance, overall risk posture, financial state, and overall business performance.
The vendors are then categorized based on the level of risk they pose to determine the extent and frequency of further assessments and monitoring. If necessary, an organization can perform onsite audits to validate a vendor’s practices and controls.
This stage can be time-consuming so automating some steps like security evaluation may help. Including vendors in the external attack surface management (EASM) process, specifically discerning weaknesses organizations may be exposed to by contracting certain vendors, can help them gauge how secure a vendor network is faster.
Stage #3: Contract Negotiation and Approval
Organizations must clearly outline a vendor’s responsibilities, deliverables, security requirements, and compliance obligations in contracts. These contracts should have been approved by their legal, compliance, and risk management teams.
Stage #4: Onboarding
Vendors should be properly integrated into an organization’s existing systems and processes. They need access to relevant communication channels, training, and the necessary resources. This access, however, must adhere to baseline security measures and controls, such as applying the principle of least privilege.
Stage #5: Continuous Monitoring
Organizations must regularly monitor a vendor’s performance and compliance through periodic assessments, reviews, and audits. Reporting, managing, and resolving incidents or breaches on a vendor’s part is also required in this stage.
As with risk assessment, an EASM platform with built-in continuous monitoring capability can help here. Even as the relationship grows and an organization’s attack surface expands with the addition of more vendors, it can continue to keep a keen eye out on potential vulnerabilities that attackers may zoom in on.
Stage #6: Contract Renewal or Termination
Before renewing a contract, organizations should reassess a vendor’s risk profile, performance, and compliance status. If terminating a relationship is needed, a structured offboarding process is important and must include data retrieval, revocation of access, and communication of a termination to relevant stakeholders.
Stage #7: Offboarding
Organizations must ensure that all the data provided to a vendor is returned or securely destroyed and access to their systems and data are revoked. Conducting a post-engagement review to evaluate a vendor’s overall performance and identify lessons learned for future engagements is also beneficial.
How Does Vendor Risk Management Differ from Third-Party Risk Management?
As mentioned earlier, VRM is a subset of TPRM that specifically focuses on vendors. As such, TPRM encompasses a wider range of external parties and a broader array of risk factors. It should be noted, however, that organizations need to implement both VRM and TPRM to effectively manage all aspects of their external relationships and associated risks.
VRM and TPRM specifically differ in scope, risk areas, processes and frameworks, and strategic importance.
| VRM | TPRM | |
| Scope | Specifically vets vendors | Vets all third parties (e.g., vendors, partners, contractors, consultants, suppliers, etc.) |
| Risk areas | Unacceptable risks like a data breach, potential business disruptions, or other issues that can negatively impact business performance | Cybersecurity, operational, compliance, reputational, financial, and strategic risks stemming from all third-party relationships |
| Processes and frameworks | Involves implementing the seven VRM stages; focuses on adhering to standards like ISO 31000, the COBIT ERM Framework, and the NIST ERM Framework | Involves implementing the five TPRM phases; focuses on complying with broader frameworks like NIST 800-161, NIST CSF v2.0, and ISO 27001 |
| Strategic importance | Helps manage, minimize, and eliminate vendor-related risks to keep organizations safe from threats and in business | Ensures third parties adhere to relevant laws, regulations, and industry standards to safeguard an organization’s network, data, and bottom line |
What Are Some Vendor Risk Management Best Practices?
To effectively manage vendor risks, organizations should adopt best practices, such as:
- Taking a risk-based approach: High-risk vendors should undergo more rigorous assessments and monitoring compared to low-risk vendors.
- Fostering collaboration and open communication: Regular meetings with key vendors are important to exchange information, discuss performance, address concerns, and provide feedback to build strong and collaborative relationships.
- Using technology: Implement VRM software to streamline vendor onboarding, risk assessment, contract management, and performance monitoring. Tools like EASM platforms can automate processes, provide real-time insights (e.g., domain, DNS, and threat intelligence; vulnerabilities and misconfigurations in connected vendor assets, etc.), and enhance overall efficiency. These solutions can continuously monitor and manage the security of external digital assets, including those managed by vendors.
- Providing employee training: Comprehensive VRM training programs should not be limited to an organization’s employees but extend to vendors. They should include awareness campaigns on the latest trends, risks, and regulatory changes related to vendor management.
Key Takeaways
- VRM involves identifying, assessing, and mitigating risks associated with third-party vendors.
- VRM is a subset of TPRM that solely focuses on vendors. The two processes vary in terms of scope, risk areas, processes and frameworks, and strategic importance.
- A risk-based approach to VRM, collaboration and open communication, technology usage, and employee training are just a few of the VRM best practices.
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