10 Best Practices of Successful Vendor Risk Assessments

The vendor risk assessment is a very crucial step in a third-party's lifecycle. The assessment will give you a better understanding of the risk posed by each vendor relationship.

10 Best Practices for Successful Vendor Risk Assessments

1. Compare your list from the Accounts Payable department to your vendor list. Make sure you haven’t overlooked a vendor when completing risk assessments.
   
   
2. Bucket your actively managed vendors into groups. Once you have your list from accounts payable, begin to sort the vendors into different buckets based on type (e.g., processors, marketing agencies, cloud storage providers).
   
   
3. Understand the inherent risk and criticality. Criticality determines if the vendor is critical or non-critical to the organization. Inherent risk determines the vendor's risk level, usually on a tiered scale such as low, moderate or high risk. You must understand both and give vendors both designations.
   
   
4. Keep a disciplined approach. The inherent risk assessment needs to be a reportable and easily repeatable process, consistent in form and content.
   
   
5. Assess vendor relationships at the product and/or service level. In order to thoroughly understand all risk posed, it’s important to complete a risk assessment on each product or service instead of just one vendor risk assessment on an entire vendor relationship. This means you want both. A risk assessment on the vendor as an entity and well as individual risk assessments on products/services provided.
   
   
6. Determine what the due diligence requirements  are as they may be increased the more critical or high risk the vendor is. If the vendor is high risk, for example, you may want to add more of the following:
   
   Contract considerations
   Increased ongoing monitoring
   More in-depth due diligence annually.
   
   
7. Evaluate risk in the vendor selection stage. Be sure to complete an assessment and understand the risk of a new or prospective relationship prior to executing a contract. 
   
   
8. Stay abreast of regulatory regulations. Implement new guidance into your vendor risk assessment process as necessary.
   
   
9. Keep senior management and the board informed. Notify them if you make significant changes to critical vendors or there are changes to any significant risk posed to the organization.
   
   
10. Risk rate each vendor. It's important to understand and document the risk of all outsourced engagements. Don’t underestimate any vendor – the landscaper, shred company, landlord, janitorial services. Each relationship should be risk rated; however, in many cases, a full residual risk assessment may not be necessary. This is dependent on the parameters of your vendor risk management program.

Implementing these best practices into your vendor risk management program should set the stage for a great foundation.

Collaborate across different lines of business for successful risk assessments. Download the infographic.