Sound policies and rigorously contracted audit and monitoring are keys to good vendor risk management.
Vendor risk management is an important component of resilient enterprises, ensuring that the supply chain is protected and that issues are identified and resolved quickly.
As seen in the recent post, 7 Core Elements of Enterprise Resilience, vendor risk management helps companies have confidence that their key partners are providing adequate controls, monitoring, and prevention development to mitigate potential risks. When using sound vendor risk management practices, there is deep transparency and understanding of the risks themselves and the solutions necessary, both before and during an event.
Here is a closer look at how to protect your supply chain with vendor risk management.
Vendor Risk Management Defined
Vendor risk management is the collective planning used to identify and prevent risks – from legal issues to cyberattacks to product availability – that can afflict third-party partners. Whether these partners are suppliers or service providers, vendor risk management ensures that the potential for business disruption is minimized and that negative impacts on business performance are understood and planned for.
Today, integrated risk management software platforms provide powerful solutions that support enterprise organizations in vendor risk management. These solutions collect information and report out on the risk assessments, probabilities, and potential exposures inherent in having IT partners.
In addition, vendor risk management accounts for the serious ramifications of sharing data and applications with third parties, knowing that the loss or compromising of this data can have disastrous consequences for the enterprise, its employees, its customers, and its reputation.
Businesses face both legal and regulatory requirements for the usage, storage, and access to data and systems. Ensuring that vendors are compliant with these requirements is another reason vendor risk management is essential.
Governance policies are a critical first step to establishing a comprehensive vendor risk management plan.
Vendor Risk Management Components
Vendor risk management programs have at their foundation several core components, including:
- Governance. Internal policies that govern the use of third-party vendors, their access to data and systems, and the security and risk management guidelines by which those vendors must abide, are the foundation of any strong vendor risk management program.
- Contracts. Your contracts with third-party providers need to include terms and conditions that address risk and the expectations for the enterprise organization. These contracts should include provisions providing a right to audit and specific minimum security requirements.
- Risk assessment. The enterprise institution needs to complete a risk assessment of each vendor, including evaluations of the right controls and measures while looking for red flags that could be problematic.
- Onsite audit. Audits of premises, systems, facilities, and data are important factors for your vendor risk management. These audits should be contractually mandated and defined.
- Reporting. Audit reporting provides the detailed documentation that provides guidance to assess vendor risks and make informed decisions about next steps for the vendor and enterprise organization.
- Monitoring of the key systems that are being used, hosted, or accessed by the third-party vendors is essential. In addition, the enterprise should also monitor the vendors’ financial health, business continuity plans, and security controls.
At Continuity Logic, we provide vendor risk management solutions as part of the enterprise risk management software solution. Our vendor risk management module tracks contract, service level agreements, and scorecards and provides risk profiles of each third-party vendor.
Book a demo to learn more about how Continuity Logic’s innovative platform can help you protect your vendor relationships.