What Is an Adequate Level of Vendor Assessment?

According to a Mordor Intelligence study, vendor management is growing at 14% year over year and is expected to continue this growth through 2025. Unfortunately, most vendor management programs have little to no budget and are staffed with part-time personnel, or at most, three to five full-time employees. 

This disparity will only increase over time, so the question becomes: “How do we determine the correct level of effort for our vendor management program when it comes to vendor assessments, and still achieve optimum results?”

Such a question requires that we look at exactly how we’re managing our vendor roster.

Proper Vendor Portfolio Management Leads to Adequate Assessment Levels

Managing your vendor portfolio so that it works for you, and not against you, is important when it comes to determining the adequate level of assessment. Here are a few important organizational steps do this properly:

1. Use data to determine the “big picture”.

The most efficient vendor management programs use the portfolio management theory to maximize the resource spend for their organization’s vendor management programs.  Simply put, that means spending the time to gather all the organization’s vendors and all the information about each vendor. Then, that data should be stored in a platform that will allow the organization to see the big picture.

2. Strategize level of effort base by creating vendor profiles.

Once you have an overall view, it becomes much easier to determine the level of effort the organization must spend on vendor management as a whole and on each vendor relationship. For instance, the organization will see that all vendors are not the same. Each vendor has its own unique inherent risk and risk mitigation strategies based on the vendor type and product/service contracted.

3. Categorize based on risk.

The next step is to divide the vendor portfolio in groups, and subsequently managing each group with the appropriate level of effort. There are three naturally occurring groups in vendor management that utilize the inherent risk context of each vendor.

These groups are:

• Critical: Vendors that would cause the organization’s operations or customer to suffer if they ceased to provide the products or services the organization has contracted them to provide. Perhaps, the best example would be the organization’s internet service provider (ISP). If that vendor had a glitch, phones wouldn’t work, computer systems wouldn’t be able to communicate and operations would grind to a halt.
• High Risk: These vendors have access to the organization’s network infrastructure, core systems and data. If a vendor has access to the organizations’ customer information, the organization’s information or the organization’s employee information, that vendor poses a high risk to all of the above.
• All others:  These are vendors that pose minimal risks to the organization.

Managing groups of vendors, instead of the entire vendor portfolio, allows you to approach assessing risk for each category and vendor type. This ensures each vendor receives the appropriate level of attention and detail they require. It also minimizes the amount of work the organization must put into vendor management.

Which vendors need more attention?

Key vendors, meaning critical and high-risk vendors, are always going to receive a high level of scrutiny. They’re going to have activity at each stage of the vendor lifecycle. For your key vendors, the coronavirus especially caused every organization to enhance the scrutiny they place on cybersecurity. Therefore, today, all vendors need to have a high level of ongoing monitoring. However, remember, not all vendors will be treated with the same level of scrutiny… it simply isn’t feasible.

When you look at your vendor portfolio you may feel overwhelmed with the amount of work that needs to be done to get the portfolio up to the standards your organization has for vendor risk management. Breaking down your vendor portfolio will give you the ability to focus on your key vendors and still maintain the level of excellence your organization has come to expect from your vendor risk management team.

Dive deeper into how to rate your vendor's risk and other components to watch out for. Download the infographic.