Before I delve into what can happen due to an insufficient vendor management program budget, let’s start with a story. Picture this. You’re the new Chief Information Security Officer (CISO) at a small to medium-sized organization. One of the tasks you’ve agreed to take on is vendor management. You’re on the job less than 24 hours when your boss comes into your office carrying a box full of file folders. He’s followed by one of your maintenance guys carrying another box full of file folders. Your boss says, “This is what we have for vendor management, so far. We need to have a functional vendor management program.”
This is the exact scenario that I once lived through. Seven DAYS later I found out we were going to have examiners on-site for our examination by the Federal Reserve Bank, and oh yes, I was the primary point of contact for the technology exam. Fast forward to ten days later, the examiners from the Federal Reserve were on-site for our bi-annual examination.
Can you guess one of the primary areas they wanted to examine? If you guessed vendor management, you’re correct! I thought to myself, “What do I do next?” There was no vendor management program in place, and we had zero dollars in the budget for vendor management. Period. What could I do next?
Budget or no budget and funds or no funds, the examiners from the Federal Reserve wanted to see our vendor management program. You see where this is going, right?
5 Results of Insufficient Vendor Management Budgets to Watch Out For
The following 5 things tend to be a result of an insufficient vendor management budget:
- Poor Exams/Audits: Your examiners and auditors will find areas where improvement in your vendor management program is needed. Poor exam/audit results are about as much fun as you can imagine.
- Missed Warning Signs: You’ll miss apparent vendor warning signs such as a decline in service levels or bad financials. It won’t happen for every vendor, but it will happen. You can’t keep up with everything that’s going on in a third party risk management program without help.
- Inconsistent Processes: There is often a lack of consistency across the organization. Departments will do whatever they have to do to keep the organization running. The departmental interpretation isn’t always the enterprise interpretation. When it comes to finding and selecting a new vendor, an organized, uniform approach across the enterprise is your goal. Inconsistent processes are an especially common result of an insufficient vendor management program since most programs that aren’t well-developed seem to have a decentralized vendor management approach.
- Spending More Money: Oh, and you’ll probably spend more money on managing vendors due to missing contract non-renewal notice periods or missing a lease renewal or finding your stuck with a price increase from a vendor your organization may not even be using much anymore. Don’t find yourself stuck in a contract that you may have wanted to cancel. Ultimately, it’ll cost your organization money due to faulty internal processes.
- Enforcement Actions: If you don’t have an operational vendor management program, and in turn, aren’t monitoring your vendors well then you may receive a fine. Enforcement actions due to poor third party vendor performance is getting more common. The Consumer Financial Protection Bureau (CFPB) just reiterated their intention to continue actively enforcing regulatory requirements and maintaining the public welfare through enforcement actions.
Vendor management today is not optional. The reality of the regulatory environment we operate in today strongly suggests every organization have an active, robust vendor management program.
Are you also monitoring your vendor's financials? Download this infographic more about the process.