Much plays into a successful vendor risk management program. The time devoted, the subject matter experts involved and a thorough understanding of the evolving regulations are all considerations to take into account. At times it can become a laborious task to fully understand all facets that should be part of your organization’s vendor risk management in order to be a thriving program.
How to Establish a Vendor Risk Management Program
We recommend you apply the following 6 steps to establish a vendor risk management program:
1. Develop a policy, program and procedures.
This is first and foremost. A well-documented policy, program and desktop procedures are fundamental to the success of a vendor risk management program. As a rule of thumb, the policy will be a high-level guide detailing how vendor risk management will be handled, the program will be comprehensive and set out the steps for senior management and the lines of business and the procedures will outline the day-to-day vendor risk management responsibilities in extensive detail.
2. Have a well-defined vendor selection process.
Forming a defined vendor vetting process is critical to the success of the organization’s vendor relationships. The process should be executed by your organization as a starting point for selecting any vendor who may provide a product/service. During this, you may consider things like:
- Issuing a Request for Proposal (RFP)
- Comparing the vendor to competitors
- Completing a risk assessment and other due diligence requirements (these should be defined in your policy!)
3. Establish contractual standards.
Not all contracts are created equal. Yes, you can have a standard template that your organization begins with when entering a new vendor relationship; however, there should be a lot of communication and understanding of both parties’ responsibilities before finalizing a contract draft. Within your organization’s contractual standards, be sure to incorporate a negotiation process, a review and approval process and an understanding of how contracts will be stored and monitored for key terms/changes. Complete contracts are very important in vendor risk management.
4. Keep up with periodic due diligence and ongoing monitoring.
An established vendor risk management program is only as strong as the due diligence process that has been implemented at the organization. Continue to perform vendor due diligence on a periodic, often times annual, basis. It’s vital that you understand any vendor changes that may impact the risk posed to your organization. Remember, due diligence is not just a request and receive process. You must analyze as a part of your vendor risk management process. Here is a snippet of what periodic due diligence would look like if done correctly:
- Reviewing the vendor’s financial statements every time they are released. Poor financials show more than just bad numbers! This could mean there is a decline in the vendor’s service levels – this is especially risky if your vendor chats with your organization’s customers – or even mean that the vendor is going to go out of business very soon.
- Continuing to request and evaluate the vendor’s SOC reports, business continuity and disaster recovery plans and information security procedures. All of this can impact your organization and customers significantly if there are gaps of faulty security controls.
- Completing annual assessments – risk assessments, performance assessments, information security assessments and more.
5. Define an internal vendor risk management audit process.
Work into your vendor risk management program an internal audit process. These are your catch-all before an examiner arrives on-site. Trust me, you’d much rather catch and fix an error or program gap well before your examiner does. An internal audit will help you verify your organization has the appropriate controls in place to mitigate risks present.
6. Have access to reporting that is robust and comprehensive.
Excel spreadsheets make reporting to senior management and the board extremely difficult. In an established vendor risk management program, you’ll have a process to access customizable reports that are easy to obtain and ready to be presented to your executive management teams and the board.
By following these 6 steps, you’re on the horizon of a program that will assist your organization greatly with adequate vendor risk management.
Many components and processes makeup a third-party management program. Download the checklist.