4 Important Vendor Risk Management FAQs for Beginners

Podcast Transcript

Hi – this is Hilary with Venminder.   

If you’re a beginner in vendor risk management, you might have a lot of questions about who should be involved and what exactly you should be doing. It’s not always easy to find clear and simple answers, because every organization will have a different perspective.

In this podcast, you'll learn some of the basics of vendor risk management as we answer four frequently asked questions from beginners. 

Here at Venminder, our qualified team of industry experts is committed to educating organizations on diverse vendor risk management topics, from beginner to advanced.

Vendor risk management can be a very challenging concept to understand because it involves many activities and individuals throughout an organization. Plus, it can serve many different purposes, which can make it a little difficult to define an organization’s vendor risk management goals and objectives.

1. So, let’s begin with the most basic question, “What is vendor risk management?” Vendor risk management refers to the process of identifying, assessing, mitigating, and managing the risks and potential threats that come from an organization’s third-party relationships. Vendor risk management also involves controlling costs and driving service excellence for an organization’s customers. You might’ve heard other terms for this practice, like third-party risk management or vendor management. 
   
   
2. Another question a beginner might ask is, “Why is vendor risk management important?” Well, depending on who you ask, you’ll likely receive different answers to this question. Someone from your compliance department will probably have a slightly different response than someone, say, from your operations team. 
   
   So, let’s review some common reasons why vendor risk management is important: 
   • First, it helps meet regulatory expectations for many organizations. There are several regulations, guidelines, and standards specific to managing vendor risk and maintaining safe vendor relationships. Some industries are highly regulated, such as finance and healthcare. And for those industries, there are several regulations, guidelines, and standards specific to managing vendor risk and maintaining safe vendor relationships. However, there are also many other regulations around data protection and privacy that are relevant to many organizations, regardless of their industry.
   • Second, vendor risk management helps support operational resilience. Many organizations rely on vendors to support critical business functions, such as data management or information security. Vendor risk management is essential to identify and manage the risks that can impact these business functions and lead to operational delays or failures. 
   • Third, vendor risk management can help reduce unexpected costs and protect your bottom line. Implementing practices like risk assessments and contract management helps prevent surprise costs from vendor data breaches, legal fees, and unnoticed auto-renewals that may be lurking in vendor contracts.
   • Fourth, vendor risk management can help protect your reputation and brand. Imagine that one of your vendors provides a service like IT support directly to your customers. If the service quality starts to decline with outages or long wait times, your customers are likely going to blame your organization, not the vendor. Vendor risk management includes activities like performance monitoring to ensure that any issues are identified and remediated before they become larger problems and harm your reputation. 
     
     
3. Another question  you might ask is, “Who is involved in vendor risk management?” Vendor risk management requires many ongoing activities, which can become overwhelming for just one team or individual. It’s better to approach vendor risk management as a cross-functional responsibility that involves multiple stakeholders at different levels.
   
   This includes roles like senior management and the board of directors, subject matter experts, a dedicated vendor risk management team, and vendor owners.
   
   
4. The final question we’re going to cover is, “How is vendor risk management performed?” The best way to understand this answer is to follow the vendor risk management lifecycle. This involves three stages, known as onboarding, ongoing, and offboarding. And each stage contains multiple activities and steps. The entire lifecycle follows the vendor relationship from beginning to end:
   • The onboarding stage includes planning for the relationship, performing a risk assessment and due diligence, and contracting. 
   • The ongoing stage involves periodic risk re-assessments, risk monitoring and performance management, contract renewals, and reoccurring due diligence.
   • The offboarding stage is where you’ll terminate the vendor relationship, execute your exit plan, and formally close the engagement with any final administrative tasks. 

Your organization may require additional steps or activities, but the lifecycle will provide a consistent framework to perform vendor risk management effectively. 

And there you have it – four vendor risk management FAQs for beginners. I hope that these answers provide a good starting point for further education that will mature your vendor risk management program. 

Thanks for tuning in; catch you next time!